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2007-05-07 CC Packet1 ,lbertville .. ALBERTVILLE CITY COUNCIL AGENDA MAY 7, 2007 7:00 PM 1. PLEDGE OF ALLEGIANCE 2. CALL TO ORDER — ROLL CALL — ADOPT AGENDA 3. MINUTES A. April 16, 2007 City Council minutes B. April 23, 2007 Special City Council minutes C. April 23, 2007 Special City Council minutes 4. CITIZEN FORUM — (10 Minute Limit) 5. CONSENT AGENDA A. Approve payment of claims check numbers 024189 to 024252 B. Set Monday, June 18, 2007 at 7:00 p.m. or soon thereafter as a continued Public Hearing for Fraser Steel Tax Increment Financing (TIF) District 13, which was originally set for Monday, June 4, 2007 C. Set Monday, May 21, 2007 at 7:00 p.m. or soon thereafter as a Public Hearing for the Issuance of Revenue Refunding Bonds Under Minnesota Statutes, Chapter 462C, as amended to Refinance a Multi -Family Rental Housing Development and Finance Additional Improvements to the Multi -Family Rental Housing Development D. Approve Resolution No. 2007-xx entitled a Resolution Transfer Funds E. Approve Resolution No. 2007-xx entitled a Resolution Designate WAC Funds F. Approve Resolution No. 2007-xx entitled a Resolution Designate General Funds G. Approve Resolution No. 2007-xx entitled a Resolution Closing Certain Funds H. Approve Resolution No. 2007-xx entitled a Resolution Amending the Official Depositories 6. ACTION ON PULLED CONSENT ITEMS 7. PUBLIC HEARING 8. 2006 AUDIT — KDV (attachment) 9. DEPARTMENT BUSINESS A. Public Works Department 1). Public Works and Parks Maintenance a. General update b. Request for Council Action to install fencing along the west side of the soccer field at Linwood Park 2). Wastewater Treatment Plant a. Request for Council Action to plant Reed Beds in Number 7 B. Building Department 1). Report on 2007 Building Permit Revenue Projection C. Finance Department 1). Accounts Receivable Update 2). Project Status Update 3). Development Update 4). Set dates for 2008 Budget Workshop meetings D. Planning and Zoning E. Engineering 1). Approve Resolution No. 2007-xx entitled a Resolution Approving the Winter Park Layout F. Legal 1). Set a date for a Public Hearing for an Easement on MacKenzie Avenue NE located within the Barthel Industrial Addition 2). Approve Resolution No. 2007-xx entitled a Resolution Ordering Stormwater Ponding Improvement 3). Approve Resolution No. 2007-xx entitled a Reimbursement Resolution 4). Approve Resolution No. 2007-xx entitled a Resolution Approving Ponding Agreement 5). Approve Resolution No. 2007-xx entitled a Resolution Accepting Alternate Bid �xercise Option to Purchase Property from ISD 885 Pursuant to April 19, 2006 Option Agreement 7). Storm Water Ponding Agreement G. City Council H. Administration 1). Written Report 2). Downtown Parking Project Soil Borings 3). Downtown Parking Project Land Appraisals 10. CLOSED SESSION (Update on Gold Key - Prairie Run Litigation) 11. ADJOURNMENT 2 AFFIDAVIT OF POSTING STATE OF MINNESOTA ) SS. COUNTY OF WRIGHT ) Tracey Nubbe, being first duly sworn, says that on the 41h day May 2007 Tracey posted the documents as shown on the reverse side a true copy of each thereof at 3:20 p.m. at the Albertville City Offices in the window, at the City of Albertville, County of Wright, State of Minnesota. Subscribed and sworn to before me this 4P%ay of , 2007. (� 1 BRIDGET MARIE MILLER NOTARY PUBLIC-MINNESOTA Notary Publi y � � Vj by � 1 3� 2CG8 _d r MAPublic Data\City Council\Council Agendas\Affidavit of Agenda Posting format.doc ALBERTVILLE CITY COUNCIL AGENDA MAY 7, 2007 7:00 PM 1. PLEDGE OF ALLEGIANCE 2. CALL TO ORDER — ROLL CALL — ADOPT AGENDA 3. MINUTES A. April 16, 2007 City Council minutes B. April 23, 2007 Special City Council minutes C. April 23, 2007 Special City Council minutes 4. CITIZEN FORUM — (10 Minute Limit) 5. CONSENT AGENDA A. Approve payment of claims check numbers 024189 to 024252 B. Set Monday, June 18, 2007 at 7:00 p.m. or soon thereafter as a continued Public Hearing for Fraser Steel Tax Increment Financing (TIF) District 13, which was originally set for Monday, June 4, 2007 C. Set Monday, May 21, 2007 at 7:00 p.m. or soon thereafter as a Public Hearing for the Issuance of Revenue Refunding Bonds Under Minnesota Statutes, Chapter 462C, as amended to Refinance a Multi -Family Rental Housing Development and Finance Additional Improvements to the Multi -Family Rental Housing Development D. Approve Resolution No. 2007-xx entitled a Resolution Transfer Funds E. Approve Resolution No. 2007-xx entitled a Resolution Designate WAC Funds F. Approve Resolution No. 2007-xx entitled a Resolution Designate General Funds G. Approve Resolution No. 2007-xx entitled a Resolution Closing Certain Funds H. Approve Resolution No. 2007-xx entitled a Resolution Amending the Official Depositories 6. ACTION ON PULLED CONSENT ITEMS 7. PUBLIC HEARING 8. 2006 AUDIT — KDV (attachment) 9. DEPARTMENT BUSINESS A. Public Works Department 1). Public Works and Parks Maintenance a. General update b. Request for Council Action to install fencing along the west side of the soccer field at Linwood Park 2). Wastewater Treatment Plant a. Request for Council Action to plant Reed Beds in Number 7 B. Building Department 1). Report on 2007 Building Permit Revenue Projection C. Finance Department 1). Accounts Receivable Update 2). Project Status Update 3). Development Update 4). Set dates for 2008 Budget Workshop meetings D. Planning and Zoning E. Engineering 1). Approve Resolution No. 2007-xx entitled a Resolution Approving the Winter Park Layout F. Legal 1). Set a date for a Public Hearing for an Easement on MacKenzie Avenue NE located within the Barthel Industrial Addition 2). Approve Resolution No. 2007-xx entitled a Resolution Ordering Stormwater Ponding Improvement 3). Approve Resolution No. 2007-xx entitled a Reimbursement Resolution 4). Approve Resolution No. 2007-xx entitled a Resolution Approving Ponding Agreement 5). Approve Resolution No. 2007-xx entitled a Resolution Accepting Alternate Bid 6). Approve the Exercise Option to Purchase Property from ISD 885 Pursuant to April 19, 2006 Option Agreement G. City Council H. Administration 1). Written Report 10. CLOSED SESSION (Update on Gold Key - Prairie Run Litigation) 11. ADJOURNMENT F) CITY OF ALBERTVILLE Wright County, Minnesota Audited Financial Statements For the Fiscal Year Ended December 31, 2006 CITY OF ALBERTVILLE Wright County, Minnesota TABLE OF CONTENTS ELECTED OFFICIALS AND ADMINISTRATION...................................................... 1 INDEPENDENT AUDITORS' REPORT......................................................................... 2 MANAGEMENT'S DISCUSSION AND ANALYSIS ..................................................... 5 BASIC FINANCIAL STATEMENTS: Government -Wide Financial Statements: Statement of Net Assets................................................................................................... 14 Statement of Activities..................................................................................................... 15 Fund Financial Statements: Balance Sheet — Governmental Funds............................................................................. 16 Reconciliation of the Balance Sheet to the Statement of Net Assets — Governmental Funds..................................................................................................... 18 Reconciliation of the Statement of Net Assets — Business -Type Activities .................... 19 Statement of Revenues, Expenditures and Changes in Fund Balances — GovernmentalFunds..................................................................................................... 20 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities — Governmental Funds ......................... 22 Reconciliation of the Revenues, Expenses and Changes in Net Assets — Business -Type Activities.............................................................................................. 23 Statement of Revenues, Expenditures and Changes in Fund Balances — Budget and Actual — General Fund........................................................................................... 24 Statement of Net Assets — Proprietary Funds.................................................................. 25 Statement of Revenues, Expenses and Changes in Fund Net Assets — ProprietaryFunds.......................................................................................................... 26 Statement of Cash Flows — Proprietary Funds................................................................. 27 Statement of Fiduciary Net Assets................................................................................... 28 Notes to the Financial Statements.......................................................................................... 29 SUPPLEMENTARY INFORMATION: Combining Balance Sheet — Nonmajor Governmental Funds ............................................... 57 Combining Statement of Revenues, Expenditures and Changes in Fund Balances — Nonmajor Governmental Funds.......................................................................................... 63 Statement of Revenues, Expenditures and Changes in Fund Balances — Budget and Actual— General Fund........................................................................................................ 69 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF THE FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENTAUDITING STANDARDS ......................... 71 REPORT ON LEGAL COMPLIANCE............................................................................ 73 SCHEDULE OF FINDINGS ON LEGAL COMPLIANCE AND INTERNALCONTROL.................................................................................................. 74 CITY OF ALBERTVILLE Wright County, Minnesota ELECTED OFFICIALS AND ADMINISTRATION December 31, 2006 Elected Officials Position Term Expires Don Peterson Mayor December 31, 2006 Tom Fay Council Member December 31, 2006 Ron Klecker Council Member December 31, 2006 LeRoy Berning Council Member December 31, 2008 John Vetsch Council Member December 31, 2008 Administration Larry Kruse City Administrator Appointed 1 KDV KERN • D[WENTER•VIERE INDEPENDENT AUDITORS' REPORT April 27, 2007 Honorable Mayor and Members of the City Council City of Albertville Albertville, Minnesota We have audited the accompanying financial statements of the governmental activities, business - type activities, each major fund and the aggregate remaining fund information of the City of Albertville, Minnesota, as of and for the year ended December 31, 2006, which collectively comprise the City's basic financial statements as listed in the Table of Contents. These financial statements are the responsibility of the City's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with U.S. generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of the governmental activities, business -type activities, each major fund and the aggregate remaining fund information of the City of Albertville, Minnesota, as of December 31, 2006, and the respective changes in financial position and cash flows, where applicable, thereof and the budgetary comparison for the General Fund for the year then ended in conformity with U.S. generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued our report dated April 27, 2007, on our consideration of the City's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. 2 KD-V KERN-DEWENTER-VIERE The Management's Discussion and Analysis, which follows this report letter, is not a required part of the basic financial statements but is supplementary information required by U.S. generally accepted accounting principles. We have applied certain limited procedures, which consisted primarily of management inquiries regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it. Our audit was performed for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. The accompanying supplementary information identified in the Table of Contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied to the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. IPA- rz , beG e-vZ- te& , ( aA-, , KERN, DEWENTER, VIERS, LTD. St. Cloud, Minnesota (THIS PAGE LEFT BLANK INTENTIONALLY.) CITY OF ALBERTVILLE Wright County, Minnesota MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2006 As management of the City of Albertville, we offer readers of the City of Albertville's financial statements this narrative overview and analysis of the financial activities of the City of Albertville for the fiscal year ended December 31, 2006. Financial Highlights The assets of the City of Albertville exceeded its liabilities at the close of the most recent fiscal year by $41,203,069 (net assets). Of this amount, $4,168,582 (unrestricted net assets) may be used to meet the government's ongoing obligations to citizens and creditors. As of the close of the current fiscal year, the City of Albertville's governmental funds reported combined ending fund balances of $10,364,563. At the end of the current fiscal year, unreserved, undesignated fund balance for the general fund was $549,004, or 17% of total general fund 2006 expenditures. Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the City of Albertville's basic financial statements. The City of Albertville's basic financial statements are comprised of three components: 1) government -wide financial statements, 2) funds financial statements, and 3) notes to the financials statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government -wide financial statements. The government -wide financial statements are designated to provide readers with a broad overview of the City of Albertville's finances, in a manner similar to a private -sector business. There are two government -wide statements, the Statement of Net Assets and Statement of Activities. The statement of net assets presents information on all the City of Albertville's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City of Albertville is improving or deteriorating. The statement of activities presents information showing how the government's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs; regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government -wide financial statements distinguish functions of the City of Albertville that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business -type activities). The governmental activities of the City of Albertville include general government, public safety, public works, culture and recreation and economic development. The business -type activities of the City of Albertville include a Water, Sanitary Sewer and Storm Sewer distribution and/or operation. CITY OF ALBERTVILLE Wright County, Minnesota MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2006 Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Albertville, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance -related legal requirements. All of the funds of the City of Albertville can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental Funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government -wide financial statements. However, unlike the government -wide financial statements, governmental fund financial statements focus on near -term inflow and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near -term financing requirements. Because the focus of governmental funds is narrower than that of the government -wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government -wide financial statements. By doing so, readers may better understand the long-term impact of the government's near -term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and the government -wide perspective. The City of Albertville adopts an annual budget for its general fund. A budgetary comparison statement has been provided for the general fund to demonstrate compliance with this budget. Proprietary funds. The City of Albertville maintains three individual proprietary funds. Enterprise funds are used to report the same functions presented as business -type activities in government -wide financial statements. The City of Albertville uses enterprise funds to account for its Water, Sanitary Sewer and Storm Sewer distribution and operation. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government -wide financial statement because the resources of those funds are not available to support the City of Albertville's own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government -wide and fund financial statements. Government -wide Financial Analysis As noted earlier, net assets may serve over time as a useful indicator of a government's financial position. In the case of the City of Albertville, assets exceeded liabilities by $41,203,069 at the close of the most recent fiscal year. R CITY OF ALBERTVILLE Wright County, Minnesota MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2006 By far the largest portion of the City of Albertville net assets reflects its investment in capital assets (e.g., land, buildings, machinery, and equipment) less any related debt used to acquire those assets that is still outstanding. The City of Albertville uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City of Albertville's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Statement of Net Assets Governmental Activities 2005 2006 Current and other assets 9,451,310 7,338,589 Capital assets 25,772,972 28,112,203 Total assets 35,224,282 35,450,792 Long -Term liabilities 8,924,863 8,154,579 Other liabilities 1,684,066 1,457,081 Total liabilities 10,608,929 9,611,660 Net assets: Invested in capital assets, net of related debt 16,171,687 19,214,778 Restricted 7,520,556 5,642,284 Unrestricted 923,110 982,070 Total net assets 24,615,353 25,839,132 Business -Type Activities 2005 2006 Total 2005 2006 9,641,105 9,296,489 19,092,415 16,635,078 11,296,561 12,248,726 37,069,533 40,360,929 20,937,666 21,545,215 56,161,948 56,996,007 5,676,331 5,253,394 14,601,194 13,407,973 922,126 927,884 2,606,192 2,384,965 6,598,457 6,181,278 17,207,386 15,792,938 5,219,803 6,572,396 4,895,012 5,605,029 4,224,394 3,186,512 14,339,209 15,363,937 21,391,490 25,787,174 12,415,568 11,247,313 5,147,504 4,168,582 38,954,562 41,203,069 An additional portion of the City of Albertville's net assets represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets ($4,168,582) may be used to meet the government's ongoing obligations to citizens and creditors. ChanLre in Net Assets The increase in net assets occurs as a result of the City's revenues and transfers being more than its expenses for the year ended December 31, 2006. 7 CITY OF ALBERTVILLE Wright County, Minnesota MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2006 REVENUES Program Revenues - Charges for Services Operating Grants and Contributions Capital Grants and Contributions General Revenues - Taxes Aids and Payments from State Other Sources Total Revenues EXPENSES General Government Public Safety Public Works Culture & Recreation Economic Development Sanitary Sewer Water Storm Sewer Interest on Long -Tenn Debt Total Expenses Governmental Activities 2005 2006 Business -type Activities Total 2005 2006 2005 2006 1,332,518 1,329,332 1,922,727 2,666,973 3,255,245 3,996,305 57,704 104,713 - - 57,704 104,713 2,964,230 688,136 181,278 102,532 3,145,508 790,668 1,801,170 2,096,259 - - 1,801,170 2,096,259 24,860 13,056 - - 24,860 13,056 168,573 888,783 119,174 265,578 287,747 1,154,361 6,349,055 5,120,279 2,223,179 3,035,083 8,572,234 8,155,362 1,347,789 939,143 - - 1,347,789 939,143 831,158 1,200,821 - - 831,158 1,200,821 654,660 3,150,492 - - 654,660 3,150,492 781,043 59,069 - - 781,043 59,069 98,603 624,550 - - 98,603 624,550 - - 555,858 834,895 555,858 834,895 - - 194,918 917,083 194,918 917,083 - - 101,160 114,825 101,160 114,825 65,895 415,400 - - 65,895 415,400 3,779,148 6,389,475 851,936 1,866,803 4,631,084 8,256,278 Change in Net Assets, Before Transfers 2,569,907 (1,269,196) 1,371,243 1,168,280 3,941,150 (100,916) Transfers 336,081 - (336,081) - - Net Assets - Beginning, Restated 21,815,016 26,772,247 12,967,966 14,531,738 34,782,982 41,303,985 Net Assets - Ending 24,384,923 25,839,132 14,339,209 15,363,937 38,724,132 41,203,069 The net cost of governmental activities is their total costs less program revenues applicable to each category. N. CITY OF ALBERTVILLE Wright County, Minnesota MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2006 Total Cost of Services 2005 2006 Net Cost of Services Revenue (Expense) 2005 2006 General Government 1,347,789 939,143 (153,904) 299,414 Public Safety 831,158 1,200,821 (729,572) (1,039,898) Public Works 424,230 3,150,492 2,551,274 (2,454,650) Culture and Recreation 781,043 59,069 (697,566) (32,210) Economic Development 98,603 624,550 (98,603) (624,550) Interest on Long Term Debt 65,895 415,400 (65,895) (415,400) Sanitary Sewer 555,858 834,895 1,036,377 580,394 Water 194,918 917,083 183,321 294,857 Storm Sewer 101,160 114,825 32,371 27,451 Total Expense 4,400,654 8,256,278 2,057,803 (3,364,592) Financial Analysis of the Government's Funds As noted earlier, the City of Albertville uses fund accounting to ensure and demonstrate compliance with finance -related legal requirements. Governmental Activities. The focus of the City of Albertville's governmental funds is to provide information on near -term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City of Albertville's financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City of Albertville's governmental funds reported combined ending fund balances of $10,364,563. Approximately $2,839,076 constitutes unreserved undesignated fund balance. The remainder of the fund balance is reserved to indicate that it is not available for new spending because it has already been committed for a variety of purposes such as capital assets and debt service. The general fund is the chief operating fund of the City of Albertville. N CITY OF ALBERTVILLE Wright County, Minnesota MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2006 General Special Revenue Funds: Sewer Access Water Access Debt Service: 2003 A GO Imp Bonds Capital Project Funds: Closed Capital Projects Prairie Run City Hall Ice Arena Locker Rooms 52nd Street/Industrial Park Revenues and Expenditures — Governmental Funds Other Financing Fund Balance Revenue Expenditures Sources (Uses) Increase (Decrease) 3,232,138 3,301,238 (492,477) (561,577) 799,073 74,166 (1,590,085) (865,178) 130,900 42 1,382,767 1,513,625 180,805 531,978 38,675 (312,498) 354,312 2,259 (223,299) 128,754 841,076 216,774 - 624,302 9,281 3,435,218 - (3,425,937) 266,164 123,760 448,364 590,768 - 689,516 - (689,516) Other Non -major funds 609,013 1,002,227 564,818 171,604 Totals 6,422,762 9,377,178 128,763 (2,825,653) General Fund Budgetary Highlights The original budget was not amended during fiscal year 2006. Differences between the final budget and actual operations are briefly summarized as follows: 10 CITY OF ALBERTVILLE Wright County, Minnesota MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2006 General Government increase of $150,065 was due mostly to an increase in City Assessor contract with Wright County, a land purchase and some miscellaneous items. The increase of $136,805 in public works was due to an employee retiring, street overlay project, street seal coat project and some miscellaneous items. The increase in Economic Development was due to the actual City of Albertville portion for the senior center was higher than expected. The overage in Capital outlay for Public Safety was due to the purchase of a new fire truck. The under budget items for Public Safety and Park and Recreation, Economic Development and Capital outlay were due to insurance costs were less than expected and to put monies away for capital outlay for planned purchases in the near future. Capital Assets and Debt Administration Capital Assets: The City of Albertville's investment in capital assets for its governmental and business type activities include land, buildings, systems, improvements, machinery, equipment, park facilities, roads and some miscellaneous items. Total capital assets for the City amounts to $40,369,929 (net of accumulated depreciation). Major Capital asset events during the current fiscal year included the following: Waste Water Treatment Facility Expansion New City Hall Facility 52°d Street Improvements School Pedestrian Trail Ice Arena Locker Room At December 31, 2006 the City has $282,320 in commitments outstanding for capital expenditures. Long-term Debt: At the end of the current fiscal year, the City had total bonded debt outstanding of $14,573,755 (net of unamortized bond costs). The City of Albertville maintains an "AT' rating. 11 CITY OF ALBERTVILLE Wright County, Minnesota MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2006 Economic Factors and Next Year's Budget The City of Albertville expects to continue its residential and commercial growth at the same rate experienced the past couple of years. Capital Projects 2006-2007: 52nd Street Industrial Park Storm Water 701h Street CSAH 19 South Lachman Ave NE CSAH 19 North City Hall South Parking Lot Winter Park Lift Station (County Rd. 37) Decommission one Waste Treatment Pond Requests for Information The financial report is designed to provide a general overview of the City of Albertville's finances for all those with an interest in the government's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the City of Albertville, 5959 Main Ave NE, P O Box 9, Albertville, MN 55301. 12 BASIC FINANCIAL STATEMENTS 13 CITY OF ALBERTVILLE Wright County, Minnesota STATEMENT OF NET ASSETS December 31, 2006 ASSETS: Cash and Investments (Including Cash Equivalents) Cash in Trust Restricted Cash in Trust Property Tax Receivable Accounts Receivable Interest Receivable Due from Other Governments Notes Receivable Land Held for Resale Special Assessments Receivable: Delinquent Deferred Capital Assets not being Depreciated: Land Construction In Progress Capital Assets being Depreciated: Infrastructure Buildings Improvements Vehicles Machinery and Equipment Sewer Plant and Lines Water Main Storm Sewer Lines Less Accumulated Depreciation Total Assets LIABILITIES AND NET ASSETS: Liabilities: Accounts Payable Salaries and Benefits Payable Interest Payable Deferred Charges Bond Principal Payable: Payable Within One Year Payable After One Year Compensated Absences Payable: Payable Within One Year Payable After One Year Total Liabilities Net Assets: Investment in Capital Assets, Net of Related Debt Restricted for: Capital Asset Acquisition Debt Service Land Held for Resale Tax Increments Other Projects Unrestricted Total Net Assets Total Liabilities and Net Assets The Notes to the Financial Statements are an integral part of this statement. Governmental Business -Type A -.:...a...- ^ -----�--- m , $ 1,256,020 $ 8,399,900 $ 9,655,920 939,989 - 939,989 78,390 78,390 81,000 - 81,000 424,203 695,501 1,119,704 42,559 - 42,559 63,385 1,713 65,098 21,200 - 21,200 2,735,714 2,735,714 293,467 - 293,467 1,402,662 199,375 1,602,037 3,732,869 190,269 3,923,138 8,509,707 - 8,509,707 19,387,922 - 19,387,922 2,622,939 4,702,684 7,325,623 518,391 - 518,391 1,512,248 - 1,512,248 305,425 236,270 541,695 - 8,192,884 8,192,884 820,487 820,487 - 215,556 215,556 (8,477,298) (2,109,424) (10,586,722) $ 35,450,792 $ 21,545,215 $ 56,996,007 $ 570,663 $ 458,365 $ 1,029,028 10,118 1,834 11,952 106,662 44,749 151,411 570 - 570 743,860 422,936 5,997,254 8,153,565 5,253,394 8,576,501 25,208 - 25,208 1,014 - 1,014 9,611,660 6,181,278 15,792,938 19,214,778 6,572,396 25,787,174 1,256,744 - 1,256,744 1,572,132 - 1,572,132 2,735,714 - 2,735,714 56,494 - 56,494 21,200 5,605,029 5,626,229 982,070 3,186,512 4,168,582 25,839,132 15,363,937 41,203,069 $ 35,450,792 $ 21,545,215 $ 56,996,007 14 V 00 O O O_ O V t- It .; N N M �D �O 7 t- ' O �o (a O ') 'n O, .� O, v'1 v1 O ON vl O, v1 O O\ 'n 14) m r M h m �o h F O� 01 V' tY N h r- lzt O [- N V' l- 00 M V' M to M O V O, M M D\ M v1 N.M.. �oO\ N O 'IT �o7 N 00 N O N vt O, 110 M D\ O\ - N .-. � vn 'o O `O N -� N l- O [- vl M O N EO M— 00 N '•• ...+ ... M It V 69 � O y ^ yud U U(]., ..... r- V --� N N ' ' ' 00 ' .-.. M O\ O, O, o0 l- T N 'n O� vl O O l- 00 O Q1 O N M M N- N N O\ 00 N O N O v'1 10 10 O N M [� M O\ N -r en01 M rn �O O y N In C, O1 N 00 WU za ro 7 0o O O O_ O O, vi --� �O I� N O\ 'n v1 O O\ O\ Vl 00 o0 r- d, O1 V V N kn l- l- r oo M o0 M D �o <t cn V [- N O� 01 M 'n N v � N 64 �O V N � N Cl C, V1 01 N M M M CC1 10 M C, 00 00 i— M M l-- M 00 .-. M N Q.�.i N N N 6q 69 140 ' ' N O N o0 m O F" o0 o0 vl O o0 - N O a p o0 o0 N r- O cl UU 6A 69 ti u 7 ti O\ W"D p U O G 0�0 l� Cn N N w O DD O O a d j d 5�n g U e w H U d u V) ? ' b to F O lO h M O 0o M O o0 r N N cN O M y U O Q O U N N W2 � w C N N r- 7 V'o �--' y y .% y on W U > oo o0 r�r 6A > y tiO. C • Fes' U .� O Q aUi ��' ti C Oq0 V] L aaei y 7 C7 d �q •�, GA 'O O M --� N O O\ O kn O, In lO O l- oo V' vi O 7 M h h M o0 Ol N O O o0 o0 o0 00 [� N v O F' N C U ('j .O N 'O N ❑ N V O� O O cp tr O� t- V V� b U d N p O F-' C G V M O N vl o0 --' M �:: �O v'1 U ,��' }, iyi Gy, U 4.) fn y 0 Y kN \O V' O� 00 .-• 00 t4) O cXy ..��. G '�-' w rNn v�i vNi M id OUO pU, All o 6A 61j C7 F U U z P.,., Z z u � N v U A„d > U . roQ d � N N 5 � a' 11 c 4> 5 N O Q . ti Q o w o > ai 0.i O O Q v ❑ U U O 3 7 rn id C% A � 3 O y c � U cn O F• � o c70.0.wUS 3 V >� O 7 15 CITY OF ALBERTVILLE Wright County, Minnesota BALANCE SHEET - GOVERNMENTAL FUNDS December 31, 2006 Debt Service Capital Projects 2003A G.O. Improvement Sewer Access Water Access General (101) Bonds (357) (204) (206) ASSETS: Cash and Investments (Including Cash Equivalents) $ 603,009 $ - $ 3,892,029 $ 1,586,915 Cash in Trust 923,142 - _ _ Restricted Cash in Trust _ _ Taxes Receivable - Delinquent 67,270 3,023 - - Special Assessment Receivable: Delinquent - _ _ _ Deferred - 316,437 176,314 23,061 Accounts Receivable, Net of Allowance 87,088 - - - Interest Receivable 42,559 - Due from Other Governments 29,238 865 - - Notes Receivable - _ Land Held for Resale - 2,735,714 - - Total Assets $ 1,752,306 $ 3,056,039 $ 4,068,343 $ 1,609,976 LIABILITIES AND FUND BALANCES: Liabilities: Cash Overdraft $ - $ 377,067 $ - $ - Accounts and Contracts Payable 125,344 - - 73,290 Accrued Salaries and Related Benefits 10,118 - - _ Deferred Revenue 67,840 319,460 176,314 23,061 Total Liabilities 203,302 696,527 176,314 96,351 Fund Balances: Reserved for: Debt Service Special Revenue - - _ Land Held for Resale - 2,735,714 - - Unreserved, Reported in: General Fund - Designated 1,000,000 - General Fund - Undesignated 549,004 - - Debt Service Funds - Undesignated - (376,202) - - Capital Projects Funds - Designated - 525,000 189,000 Capital Projects Funds - Undesignated - - 3,367,029 1,324,625 Total Fund Balances 1,549,004 2,359,512 3,892,029 1,513,625 Total Liabilities and Fund Balances $ 1,752,306 $ 3,056,039 $ 4,068,343 $ 1,609,976 The Notes to the Financial Statements are an integral part of this statement. 16 Capital Projects Closed Capital Projects (400, 52nd Street Other Total 450, 451, 452, Prairie Run City Hall Industrial Park Governmental Governmental 453) (473) (482) (492) Funds Funds $ 181,928 $ - $ 2,826,160 $ 9,090,041 - - - - 16,847 939,989 - - - - 78,390 78,390 - - - - 10,707 81,000 - 220,018 - - 73,449 293,467 196,884 644,384 - - 244,957 1,602,037 337,115 - - - 424,203 - - - - - 42,559 - 18,273 - 15,009 63,385 - - 21,200 21,200 - - - - - 2,735,714 $ 533,999 $ 882,675 $ 181,928 $ - $ 3,286,719 $ 15,371,985 $ 115,218 $ 809,199 $ - $ 673,279 $ 380,314 $ 2,355,077 71,517 70,123 255,522 18,737 29,420 643,953 - - - - - 10,118 196,884 864,402 - - 350,313 1,998,274 383,619 1,743,724 255,522 692,016 760,047 5,007,422 - - - - 1,225,679 1,225,679 - - - - 159,771 159,771 - - - - 2,735,714 - - - - 1,000,000 - - - - - 549,004 - - - (81,014) (457,216) 150,380 - - 1,539,943 2,404,323 - (861,049) (73,594) (692,016) (317,707) 2,747,288 150,380 (861,049) (73,594) (692,016) 2,526,672 10,364,563 $ 533,999 $ 882,675 $ 181,928 $ - $ 3,286,719 $ 15,371,985 17 CITY OF ALBERTVILLE Wright County, Minnesota RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET ASSETS - GOVERNMENTAL FUNDS December 31, 2006 Total Fund Balances - Governmental Funds $ 10,364,563 Amounts reported for governmental activities in the Statement of Net Assets are different because: Capital assets used in governmental activities are not current financial resources and, therefore, are not reported as assets in governmental funds. Cost of Capital Assets 36,589,501 Less Accumulated Depreciation (8,477,298) Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported as liabilities in the funds. Long-term liabilities at year-end consist of: Bond Principal Payable (9,160,000) Compensated Absences Payable (26,222) Governmental funds report debt issuance discounts and costs as an other financing use and a current expenditure, respectively, at the time of issuance. Discounts and issuance costs are reported as an unamortized asset in the government -wide financial statements. 262,575 Delinquent receivables will be collected in subsequent years, but are not available soon enough to pay for the current period's expenditures and, therefore, are deferred in the funds. Property Taxes 81,000 Special Assessments 293,467 Revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds. Deferred Special Assessments Receivable 1,402,662 Notes Receivable 21,200 Governmental funds do not report a liability for accrued interest due and payable. (106,662) Water Access Capital Projects Fund is proprietary in nature and, therefore, reported in the business -type activities in the Statement of Net Assets. (1,513,625) Sewer Access Capital Projects Fund is proprietary in nature and, therefore, reported in the business -type activities in the Statement of Net Assets. (3,892,029) Total Net Assets - Governmental Activities $ 25,839,132 The Notes to the Financial Statements are an integral part of this statement. 18 CITY OF ALBERTVILLE Wright County, Minnesota RECONCILIATION OF THE STATEMENT OF NET ASSETS - BUSINESS -TYPE ACTIVITIES December 31, 2006 Total Net Assets - Proprietary Funds $ 9,758,908 Amounts reported for business -type activities in the Statement of Net Assets are different because: The Sewer Access Capital Projects Fund is proprietary in nature and relates to the sewer access charges for the Sanitary Sewer Fund. Therefore, it is included as a business -type activity. 3,892,029 The Sewer Access Capital Projects Fund recorded deferred special assessments receivable. In the fund statements, deferred special assessments are not available in the current period and, therefore, are deferred in the funds. This revenue is recognized when earned as a business -type activity. 176,314 The Water Access Capital Projects Fund is proprietary in nature and relates to the water access charges for the Water Fund. Therefore, it is included as a business -type activity. 1,513,625 The Water Access Capital Projects Fund recorded deferred special assessments receivable. In the fund statements, deferred special assessments are not available in the current period and, therefore, are deferred in the funds. This revenue is recognized when earned as a business -type activity. 23,061 Total Net Assets - Business -Type Activities $ 15,363,937 The Notes to the Financial Statements are an integral part of this statement. 19 CITY OF ALBERTVILLE Wright County, Minnesota STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS For the Year Ended December 31, 2006 REVENUES: Taxes Tax Increments Special Assessments Licenses and Permits Intergovernmental Charges for Services Fines and Forfeitures Miscellaneous: Investment Income Miscellaneous Total Revenues EXPENDITURES: Current: General Government Public Safety Public Works Park and Recreation Economic Development Debt Service: Principal Interest and Other Charges Capital Outlay: General Government Public Safety Public Works Park and Recreation Total Expenditures Excess of Revenues Over (Under) Expenditures OTHER FINANCING SOURCES (USES): Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances FUND BALANCES: Beginning of Year, as Previously Stated Debt Service Capital Projects 2003A G.O. Improvement Sewer Access Water Access General (101) Bonds(357) (204) (206) $ 1,620,927 $ 76,028 - 54,269 67,635 7,778 487,132 - - _ 115,528 50,508 - - 645,272 - 636,502 109,417 3,702 _ _ 180,147 - 94,936 13,705 179,430 - - _ 3,232,138 180,865 799,073 130,900 925,032 - _ 1,080,046 - - _ 582,576 - - _ 149,145 - _ _ 4,322 - _ _ - 450,000 - - 81,978 - 10,796 - _ 502,545 - _ _ 22,895 - 74,166 42 23,881 - _ _ 3,301,238 531,978 74,166 42 (69,100) (351,173) 724,907 130,858 120,218 38,675 - 1,382,767 (612,695) - (1,590,085) - (492,477) 38,675 (1,590,085) 1,382,767 (561,577) (312,498) (865,178) 1,513,625 2,110,581 (155,096) 4,798,599 - Prior Period Adjustment - 2,827,106 (41,392) - Beginning of Year, Restated 2,1 10,581 2,672,010 4,757,207 - End of Year $ 1,549,004 $ 2,359,512 $ 3,892,029 $ 1,513,625 The Notes to the Financial Statements are an integral part of this statement. 20 Capital Projects Closed Capital Projects (400, Ice Arena 52nd Street Other Total 450, 451, 452, Prairie Run City Hall Locker Rooms Industrial Park Governmental Governmental 453) (473) (482) (488) (492) Funds Funds $ - $ 259,929 $ 1,956,884 - - - - - 98,546 98,546 165,934 841,076 - - - 55,171 1,191,863 - - - - - - 487,132 - - - 1,733 167,769 - - - - - 25,012 1,416,203 - - - - 3,702 - - 9,281 - - 69,358 367,427 188,378 - - 266,164 - 99,264 733,236 354,312 841,076 9,281 266,164 - 609,013 6,422,762 - - - - - 925,032 - - - - - - 1,080,046 - - - - - - 582,576 - - - - 68,763 217,908 - - - - 54,747 59,069 - - - - - 275,000 725,060 - - - - 311,014 392,992 - 3,435,218 - - 3,446,014 - - - - - - 502,545 2,259 216,774 - 689,516 289,388 1,295,040 - - - 123,760 - 3,315 150,956 2,259 216,774 3,435,218 123,760 689,516 1,002,227 9,377,178 352,053 624,302 (3,425,937) 142,404 (689,516) (393,214) (2,954,416) 102,561 - - 448,364 - 2,050,284 4,142,869 (325,860) - - - - (1,485,466) (4,014,106) (223,299) - - 448,364 - 564,818 128,763 128,754 624,302 (3,425,937) 590,768 (689,516) 171,604 (2,825,653) (76,006) (1,485,351) 3,352,343 (590,768) (2,500) 2,405,068 10,356,870 97,632 - - (50,000) 2,833,346 21,626 (1,485,351) 3,352,343 (590,768) (2,500) 2,355,068 13,190,216 $ 150,380 $ (861,049) $ (73,594) $ - $ (692,016) $ 2,526,672 $ 10,364,563 21 CITY OF ALBERTVILLE Wright County, Minnesota RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES - GOVERNMENTAL FUNDS For the Year Ended December 31, 2006 Total Net Change in Fund Balances - Governmental Funds $ (2,825,653) Amounts reported for governmental activities in the Statement of Activities are different because: Capital outlays are reported in governmental funds as expenditures. However, in the Statement of Activities, the cost of those assets is allocated over the estimated useful lives as depreciation expense. Capital Outlays 3,851,975 Depreciation Expense (1,025,332) Compensated absences are recognized as paid in the governmental funds but recognized as the expense is incurred in the Statement of Activities. 540 Principal payments on long-term debt are recognized as expenditures in the governmental funds, but as an increase in the net assets in the Statement of Activities. 725,000 Interest on long-term debt in the Statement of Activities differs from the amount reported in the governmental funds because interest is recognized as an expenditure in the funds when it is due and thus requires use of current financial resources. In the Statement of Activities, however, interest expense is recognized as the interest accrues, regardless of when it is due. (1,268) Bond discounts and issuance costs are amortized in the Statement of Activities, whereas governmental funds record the discount and issuance cost as an expenditure at the time of issuance. (21,140) Certain revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds. Deferred Special Assessments (1,287,494) Notes Receivable (35,378) Delinquent receivables will be collected in subsequent years, but are not available soon enough to pay for the current period's expenditures and, therefore, are deferred in the funds. Delinquent Special Assessments 293,253 Delinquent Property Taxes 40,829 Sewer Access Capital Projects Fund is proprietary in nature and, therefore, is reported with business -type activities. 865,178 Water Access Capital Projects Fund is proprietary in nature and, therefore, is reported with business -type activities. (1,513,625) Change in Net Assets - Governmental Activities $ (933,115) The Notes to the Financial Statements are an integral part of this statement. 22 CITY OF ALBERTVILLE Wright County, Minnesota RECONCILIATION OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS - BUSINESS -TYPE ACTIVITIES For the Year Ended December 31, 2006 Total Net Change in Fund Net Assets - Proprietary Funds $ 80,790 Amounts reported for business -type activities in the Statement of Activities are different because: Recognize current year activity from the Sewer Access Capital Projects Fund with the business -type activities. (865,178) Deferred special assessments from the Sewer Access Capital Projects Fund are not available in the current period and, therefore, are deferred in the Funds. 79,901 Recognize current year activity from the Water Access Capital Projects Fund with the business -type activities. 1,513,625 Deferred special assessments from the Water Access Capital Projects Fund are not available in the current period and, therefore, are deferred in the Funds. 23,061 Change in Net Assets - Business -Type Actvities $ 832,199 The Notes to the Financial Statements are an integral part of this statement. 23 CITY OF ALBERTVILLE Wright County, Minnesota STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - GENERAL FUND For the Year Ended December 31, 2006 REVENUES: Taxes Licenses and Permits Intergovernmental Charges for Services Fines and Forfeitures Miscellaneous Revenues: Investment Income Miscellaneous Total Revenues EXPENDITURES: Current: General Government Public Safety Public Works Park and Recreation Economic Development Capital Outlay: General Government Public Safety Public Works Park and Recreation Total Expenditures Excess of Revenues Over (Under) Expenditures OTHER FINANCING SOURCES (USES): Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances FUND BALANCES: Beginning of Year End of Year Variance with Budgeted Amounts Final Budget - Original Final Actual Amounts Over (Under) $ 1,735,899 $ 1,735,899 $ 1,620,927 $ (114,972) 551,940 551,940 487,132 (64,808) 74,150 74,150 115,528 41,378 489,228 489,228 645,272 156,044 100 100 3,702 3,602 75,000 75,000 180,147 105,147 10,000 10,000 179,430 169,430 2,936,317 2,936,317 3,232,138 295,821 774,967 774,967 925,032 (150,065) 1,183,167 1,183,167 1,080,046 103,121 445,771 445,771 582,576 (136,805) 158,559 158,559 149,145 9,414 4,000 4,000 4,322 (322) 153,000 153,000 10,796 142,204 53,400 53,400 502,545 (449,145) 37,500 37,500 22,895 14,605 47,500 47,500 23,881 23,619 2,857,864 2,857,864 3,301,238 (443,374) 78,453 78,453 (69,100) (147,553) - - 120,218 120,218 - - (612,695) (612,695) - - (492,477) (492,477) $ 78,453 $ 78,453 (561,577) $ (640,030) 2,110,581 $ 1,549,004 The Notes to the Financial Statements are an integral part of this statement. 24 CITY OF ALBERTVILLE Wright County, Minnesota STATEMENT OF NET ASSETS - PROPRIETARY FUNDS December 31, 2006 ASSETS: Current Assets: Cash and Investments (Including Cash Equivalents) Accounts Receivable Due from Other Governments Total Current Assets Noncurrent Assets: Capital Assets: Land Sewer Plant and Lines Water Main Storm Sewer Lines Machinery and Equipment Building Total Capital Assets Less Accumulated Depreciation Net Capital Assets Total Assets LIABILITIES AND NET ASSETS: Current Liabilities: Accounts and Contracts Payable Accrued Salaries and Related Benefits Accrued Interest Payable Amount Due Within One Year Total Current Liabilities Noncurrent Liabilities: Bonds Payable, Net of Unamortized Charges Less Amount Due Within One Year Total Noncurrent Liabilities Total Liabilities Net Assets: Invested in Capital Assets, Net of Related Debt Unrestricted Total Net Assets Total Liabilities and Net Assets Sanitary Storm Water Sewer (601) Water (602) (604) Total $ 1,475,095 $ 752,157 $ 693,704 $ 2,920,956 352,470 290,113 52,918 695,501 - 150 1,563 1,713 1,827,565 1,042,420 748,185 3,618,170 190,269 - - 190,269 8,192,884 - - 8,192,884 - 820,487 - 820,487 - - 215,556 215,556 193,560 42,710 - 236,270 4,702,684 - - 4,702,684 13,279,397 863,197 215,556 14,358,150 (1,998,975) (103,279) (7,170) (2,109,424) 11,280,422 759,918 208,386 12,248,726 $ 13,107,987 $ 1,802,338 $ 956,571 $ 15,866,896 $ 284,297 $ 56,188 $ 44,590 $ 385,075 840 994 - 1,834 44,749 - - 44,749 422,936 - - 422,936 752,822 57,182 44,590 854,594 5,676,330 - - 5,676,330 (422,936) - - (422,936) 5,253,394 - - 5,253,394 6,006,216 57,182 44,590 6,107,988 5,604,092 759,918 208,386 6,572,396 1,497,679 985,238 703,595 3,186,512 7,101,771 1,745,156 911,981 9,758,908 $ 13,107,987 $ 1,802,338 $ 956,571 $ 15,866,896 The Notes to the Financial Statements are an integral part of this statement. 25 CITY OF ALBERTVILLE Wright County, Minnesota STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS - PROPRIETARY FUNDS For the Year Ended December 31, 2006 OPERATING REVENUES: Charges for Services Penalties and Interest Trunk Charges Total Operating Revenues OPERATING EXPENSES: Wages, Salaries and Compensation Materials and Supplies Repairs and Maintenance Professional Services Insurance Utilities Depreciation Equipment Miscellaneous Joint Powers Reimbursements Total Operating Expenses Operating Income (Loss) NONOPERATING REVENUES (EXPENSES): Investment Income Special Assessments Meter Sales Meter Purchases Refunds and Reimbursements Bond Interest and Fiscal Charges Miscellaneous Operating Revenues Total Nonoperating Revenues (Expenses) Income before Capital Contributions and Transfers Transfers In Transfers Out Change in Net Assets NET ASSETS: Beginning of Year, As Previously Stated Prior Period Adjustment Beginning of Year, Restated End of Year Sanitary Storm Water Sewer (601) Water (602) (604) Total $ 622,660 $ 1,001,152 $ 40,427 $ 1,664,239 - 8,112 37,240 45,352 - - 64,609 64,609 622,660 1,009,264 142,276 1,774,200 67,757 66,714 - 134,471 46,283 7,645 - 53,928 15,759 35,797 293 51,849 6,103 10,200 107,243 123,546 2,066 783 - 2,849 56,243 - - 56,243 296,758 23,621 5,389 325,768 17,031 1,777 - 18,808 2,532 3,712 1,900 8,144 - 686,305 - 686,305 510,532 836,554 114,825 1,461,911 112,128 172,710 27,451 312,289 117,882 26,623 12,432 156,937 6,365 20,754 - 27,119 - 27,407 27,407 - (80,487) - (80,487) 2,226 - - 21226 (250,197) - - (250,197) - 14,259 - 14,259 (123,724) 8,556 12,432 (102,736) (11,596) 181,266 39,883 209,553 1,254,004 - - 1,254,004 - (1,382,767) - (1,382,767) 1,242,408 (1,201,501) 39,883 80,790 5,625,442 2,946,657 872,098 9,444,197 233,921 - - 233,921 5,859,363 2,946,657 872,098 9,678,118 $ 7,101,771 $ 1,745,156 $ 911,981 $ 9,758,908 The Notes to the Financial Statements are an integral part of this statement. 26 CITY OF ALBERTVILLE Wright County, Minnesota STATEMENT OF CASH FLOWS - PROPRIETARY FUNDS For the Year Ended December 31, 2006 Sanitary Storm Water Sewer (601) Water (602) (604) Total CASH FLOWS - OPERATING ACTIVITIES: Receipts from Customers and Users $ 557,247 $ 877,386 $ 134,322 $ 1,568,955 Payments to Suppliers (183,685) (824,446) (69,046) (1,077,177) Payments to Employees (67,998) (66,801) - (134,799) Net Cash Flows - Operating Activities 305,564 (13,861) 65,276 356,979 CASH FLOWS - NONCAPITAL FINANCING ACTIVITIES: Transfer from Other Funds 1,254,004 - - 1,254,004 Transfer to Other Funds - (1,382,767) - (1,382,767) Net Cash Flows - Noncapital Financing Activities 1,254,004 (1,382,767) - (128,763) CASH FLOWS - CAPITAL AND RELATED FINANCING ACTIVITIES: Principal Paid on Debt (404,925) - - (404,925) Interest Paid on Debt (242,745) - - (242,745) Special Assessments 6,365 20,754 - 27,119 Acquisition of Capital Assets (1,082,837) - - (1,082,837) Purchases of Water Meters - (80,487) - (80,487) Sales of Water Meters - 27,407 - 27,407 Other Miscellaneous Receipts 2,226 14,259 - 16,485 Net Cash Flows - Capital and Related Financing Activities (1,721,916) (18,067) - (1,739,983) CASH FLOWS - INVESTING ACTIVITIES: Interest and Dividends Received 117,882 26,623 12,432 156,937 Net Change in Cash and Cash Equivalents (44,466) (1,388,072) 77,708 (1,354,830) Cash and Cash Equivalents, January 1 1,480,736 2,140,229 615,996 4,236,961 Cash and Cash Equivalents, December 31 $ 1,436,270 $ 752,157 $ 693,704 $ 2,882,131 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH FLOWS - OPERATING ACTIVITIES: Operating Income (Loss) $ 112,128 $ 172,710 $ 27,451 $ 312,289 Adjustments to Reconcile Operating Income (Loss) to Net Cash Flows - Operating Activities: Depreciation Expense 296,758 23,621 5,389 325,768 Accounts Receivable (66,447) (131,728) (7,950) (206,125) Due from Other Governments 1,034 (150) (4) 880 Accounts Payable (37,668) (78,227) 40,390 (75,505) Salaries Payable (241) (87) - (328) Total Adjustments 193,436 (186,571) 37,825 44,690 Net Cash Flows -Operating Activities $ 305,564 $ (13,861) $ 65,276 $ 356,979 The Notes to the Financial Statements are an integral part of this statement. 27 CITY OF ALBERTVILLE Wright County, Minnesota STATEMENT OF FIDUCIARY NET ASSETS December 31, 2006 ASSETS: Cash and Investments (Including Cash Equivalents) LIABILITIES: Accounts Payable Albertville Landscaping Friendly City Escrows Total $ 10,191 $ $ 10,191 $ 76,996 $ 87,187 76,996 $ 87,187 The Notes to the Financial Statements are an integral part of this statement. 28 CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity The City of Albertville is a statutory city governed by an elected mayor and four council members. The accompanying financial statements present the government entities for which the government is considered to be financially accountable. The financial statements present the City and its component units. The City includes all funds, account groups, organizations, institutions, agencies, departments and offices that are not legally separate from such. Component units are legally separate organizations for which the elected officials of the City are financially accountable and are included within the basic financial statements of the City because of the significance of their operational or financial relationships with the City. The City is considered financially accountable for a component unit if it appoints a voting majority of the organization's governing body and it is able to impose its will on the organization by significantly influencing the programs, projects, activities or level of services performed or provided by the organization, or there is a potential for the organization to provide specific financial benefits to or impose specific financial burdens on, the City. As a result of applying the component unit definition criteria above, certain organizations have been defined in accordance with Governmental Accounting Standards Board (GASB) Statement No. 14 and are presented in this report as follows: Joint Ventures and Jointly Governed Organizations — The relationship of the City with the entity is disclosed For the category above, the specific entities are identified as follows: 1. Joint Ventures and Jointly Governed Organizations Joint Powers Board Water Fund In 1977, the City of Albertville entered into an agreement with the Cities of St. Michael, Hanover and Frankfort Township to construct a water system under a grant bond arrangement with the City of Albertville Economic Development Administration (EDA). Water Revenue Bonds were issued in the name of the City of Albertville and purchased by the City of Albertville EDA. The Joint Powers Board remits the annual bond and interest payment to the City of Albertville which, in turn, remits the payment to the City of Albertville EDA. 29 CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity (Continued) 1. Joint Ventures and Jointly Governed Organizations (Continued) Joint Powers Board Water Fund (Continued) The Joint Powers Agreement states in the event the Joint Powers Board Water Fund does not generate sufficient revenue to pay operating costs and principal and interest on bonds, the participants agree to contribute from their General Fund an amount sufficient to pay for such deficiency. At the time of the original Agreement, each City and Town was to contribute 25% of the required amount. In 1996, Frankfort Township was annexed into the Cities of St. Michael, Albertville and Otsego and no longer exists as a township. Therefore, the City of Albertville is now required to contribute one-third of any potential deficiencies of the Joint Powers Board. A summary of the financial information of the Joint Powers Board Water Fund for the year ended December 31, 2006 is: Total Assets $ 26,659,818 Total Liabilities $ 13,462,113 Total Net Assets 13,197,705 Total Liabilities and Net Assets $ 26,659,818 Operating Revenue $ 2,047,923 Operating Expense 1,170,700 Other Income (Expense) 541,708 Change in Net Assets $ 1,418,931 Financial statements for the Joint Powers Board Water Fund may be obtained at the Albertville City Hall. St. Michael -Albertville Ice Arena In 1996 and 1997, the City of Albertville entered into a Joint Powers Agreement with the City of St. Michael and Independent School District No. 885, St. Michael -Albertville, for construction and maintenance of a qualified ice arena. In addition, the City received notice in 1996 of being selected as a Mighty Ducks Grant recipient to help fund the cost of the St. Michael -Albertville Ice Arena (STMA Arena). The STMA Arena was constructed with the Mighty Ducks Grant funds, donations and contributions by the Cities of St. Michael and Albertville and Independent School District No. 885. 30 CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity (Continued) 1. Joint Ventures and Jointly Governed Organizations (Continued) St. Michael -Albertville Ice Arena (Continued) The Joint Powers Agreement states the City is to execute a revenue note in the amount of $ 133,333, which will be paid back with funds available from the operation of the STMA Arena. The total amount of the revenue note is to be $ 400,000, of which each participant is one-third responsible. If funds are deficient, the City must pay one-third of the amount necessary to make up the shortage. In addition, the City must allocate an amount sufficient to pay one-third of any projected shortfall in annual revenues available for the operation and maintenance of the STMA Arena. During 1998, the City contributed the required $ 133,333 toward the STMA Arena. In addition, in 1998 the City's Storm Water Enterprise Fund provided STMA Arena with a short-term loan in the amount of $ 83,333. In 2006, 2005 and 2004, the City did not make any contributions nor receive any payments on the loan. The City did, however, cancel the short-term loan, due from other governments, in the amount of $ 83,333 as a bad debt expense. A summary of the financial information of the STMA Arena for the year ended December 31, 2005 (information for 2006 was not available) is: Total Assets $ 828,081 Total Liabilities $ 681,688 Total Net Assets 146,393 Total Liabilities and Equity $ 828,081 Total Revenues $ 198,747 Operating Expenses 213,242 Other Income (Expense) 190 Change in Net Assets $ (14,305) Financial statements for the STMA Arena may be obtained at the Albertville City Hall. 31 CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES B. Government -Wide and Fund Financial Statements The government -wide financial statements (i.e., the Statement of Net Assets and the Statement of Activities) report information on all of the nonfiduciary activities of the City. The fiduciary funds are only reported in the Statement of Fiduciary Net Assets at the fund financial statement level. For the most part, the effect of interfund activity has been removed from these Statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business -type activities, which rely to a significant extent on fees and charges for support. The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Interest on general long-term debt is considered an indirect expense and is reported separately in the Statement of Activities. Program revenues include 1) charges to customers or applicants who purchase, use or directly benefit from goods, services or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds and proprietary funds. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. The Agency Funds are presented in the fiduciary fund financial statements. Since, by definition, these assets are being held for the benefit of a third party (other local governments, private parties, etc.) and cannot be used to address activities or obligations of the City, these Funds are not incorporated into the government -wide statements. C. Measurement Focus, Basis of Accounting and Financial Statement Presentation The government -wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. 32 CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES C. Measurement Focus, Basis of Accounting and Financial Statement Presentation (Continued) Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Property taxes, franchise taxes, licenses and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received by the City. Description of Funds: Major Governmental Funds: General Fund — This Fund is the City's primary operating fund. It accounts for all financial resources of the general City, except those required to be accounted for in another fund. 2003A G.O. Improvement Bonds Debt Service Fund — This Fund accounts for the debt associated with street improvement projects. Sewer Access Capital Projects Fund — This Fund accounts for the resources accumulated from sewer availability charges collected by the City. Water Access Capital Projects Fund — This Fund accounts for the resources accumulated for water access connection collected by the City. Closed Capital Projects Fund — This Fund accounts for costs associated with replacement of the City's utility and road systems. It also covers minor costs for project funds closed and completed. Prairie Run Capital Projects Fund — This Fund accounts for the resources and payments made for construction of public improvements at the Prairie Run Development. City Hall Capital Projects Fund — This Fund accounts for the resources and payments made for construction of the City Hall. 33 CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES C. Measurement Focus, Basis of Accounting and Financial Statement Presentation (Continued) Description of Funds: (Continued) Major Governmental Funds: (Continued) Ice Arena Locker Rooms — This Fund accounts for the resources and payments made for construction of the ice arena locker rooms. 52"d Street Industrial Park — This Fund accounts for the resources and payments made for construction related to the Industrial Park. Major Proprietary Funds: Sanitary Sewer Fund — This Fund accounts for the operations of the City's sanitary sewer utility. Water Fund — This Fund accounts for the operations of the City's water utility. Storm Water Fund — This Fund accounts for the activities of the City's storm drainage operations. Fiduciary Fund: Agency Funds — These Funds account for landscaping escrow deposits and funds for the City's "Friendly Days" held by the City in a strictly custodial capacity. Private -sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government -wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the GASB. Governments also have the option of following subsequent private -sector guidance for their business -type activities and enterprise funds, subject to this same limitation. The City has elected not to follow subsequent private -sector guidance. As a general rule, the effect of interfund activity has been eliminated from the government - wide financial statements. Exceptions to this general rule are charges between the City's sanitary sewer function and various other functions of the City. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. 34 CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES C. Measurement Focus, Basis of Accounting and Financial Statement Presentation (Continued) Amounts reported as program revenues include 1) charges to customers or applicants for goods, services or privileges provided, 2) operating grants and contributions and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the Sanitary Sewer, Water and Storm Water Enterprise Funds are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the City's policy to use restricted resources first, then unrestricted resources as they are needed. D. Assets, Liabilities and Net Assets or Equity 1. Deposits and Investments The City's cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. Minnesota Statutes authorizes the City to invest in obligations of the U.S. Treasury, agencies and instrumentalities, shares of investment companies whose only investments are in the aforementioned securities, obligations of the State of Minnesota or its municipalities, bankers' acceptances, future contracts, repurchase and reverse repurchase agreements and commercial paper of the highest quality with a maturity of no longer than 270 days and in the Minnesota Municipal Investment Pool. Custodial Credit Risk — Deposits: Custodial credit risk is the risk that in the event of a bank failure, the City's deposits may not be returned to it. Minnesota Statutes require all deposits made by cities with financial institutions are collateralized in an amount equal to 110% of deposits in excess of Federal Deposit Insurance Corporation (FDIC) insurance. 35 CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES D. Assets, Liabilities and Net Assets or Equity (Continued) 1. Deposits and Investments (Continued) Concentration of Credit Risk: The City's investment policy has addressed concentration of credit risk as to diversification and is required to limit potential losses to no more than the income generated by the portfolio. Interest Rate Risk: The City's policy also addresses interest rate risk by not allowing the City to invest in securities maturing more than five years from the date of purchase. Also, no more than 50% of the dollar value of the City's investments will mature more than two years from the date of purchase. The City will not purchase investments that cannot be held to maturity. The policy also covers that the City will handle its investment transactions with several legal, competing, reputable investment security dealers. The City's policy has not addressed exposure to credit risk and custodial credit risk. Custodial Credit Risk — Investments: For an investment, this is the risk that in the event of the failure of the counterparty the City will not be able to recover the value of its investment or collateral securities that are in the possession of an outside party. Investments for the City are reported at fair value. The Minnesota Municipal Investment Pool is an external investment pool not registered with the Securities Exchange Commission (SEC) that follows the same regulatory rules of the SEC under Rule 2.a.7. The fair value of the position in the pool is the same as the value of the pool shares. 2. Restricted Assets Certain proceeds of the Public Facilities Authority's revenue bonds, as well as certain resources set aside for their repayment, are classified as restricted assets in the Balance Sheet — Governmental Funds Statement because they are maintained in separate bank accounts and their use is limited by the Public Facilities Authority Loan Agreement. 3. Property Tax Receivables All property tax receivables are shown at a gross amount since both are assessable to the property taxes and are collectible upon the sale of the property. we CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES D. Assets, Liabilities and Net Assets or Equity (Continued) 3. Property Tax Receivables (Continued) The City levies its property tax for the subsequent year during the month of December. December 28 is the last day the City can certify a tax levy to the County Auditor for collection the following year. Such taxes become a lien on January 1 and are recorded as receivables by the City at that date. The property tax is recorded as revenue when it becomes measurable and available. Wright County is the collecting agency for the levy and remits the collections to the City three times a year. The tax levy notice is mailed in March with the first half of the payment due on May 15 and the second half of the payment due on October 15. Taxes not collected as of December 31 each year are shown as delinquent taxes receivable. The County Auditor prepares the tax list for all taxable property in the City, applying the applicable tax rate to the tax capacity of individual properties, to arrive at the actual tax for each property. The County Auditor also collects all special assessments, except for certain prepayments paid directly to the City. The County Auditor submits the list of taxes and special assessments to be collected on each parcel of property to the County Treasurer in January of each year. 4. Land Held for Resale The City of Albertville acquires properties for redevelopment purposes. Land held for resale is reported as an asset at its net realizable value in the 2003 G.O. Improvement Bonds Debt Service Fund. Any costs incurred that are above a property's net realizable value are reported as expenditures of the current period. Land Held for Resale is offset by a fund balance reservation in the 2003 G.O. Improvement Bonds Debt Service Fund to indicate that it is not available for appropriation and is not expendable available financial resources. 5. Capital Assets Capital assets, which include property, plant, equipment and infrastructure assets (e.g., roads, sidewalks and similar items), are reported in the applicable governmental or business -type activities columns in the government -wide financial statements. Capital assets are defined by the City as assets with an estimated useful life greater than one year and with an initial individual cost as shown on the following page. 37 CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES D. Assets, Liabilities and Net Assets or Equity (Continued) 5. Capital Assets (Continued) Land $ 10,000 Land Improvements 25,000 Infrastructure 100,000 Buildings 25,000 Building Improvements 25,000 Vehicles 5,000 Other Equipment 5,000 Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Property, plant and equipment of the City are depreciated using the straight-line method over the following estimated useful lives: Assets Land Improvements Infrastructure Buildings Vehicles Other Equipment 6. Vacation, Sick and Compensatory Benefits Years 5-30 15-50 15-40 3-15 3-20 The City compensates employees who resign or retire with due notice for unused vacation and compensatory time. Employees may carry over vacation time from one vacation year to another vacation year as established by the employee's anniversary date. Compensatory time is accumulated at 1.5 times for overtime hours worked. A maximum of 40 hours of compensatory time may be accumulated. Full-time employees are entitled to sick leave at the rate of one day per month to a maximum of 120 days, or 480 hours. Hours accumulated in excess of the maximum are applied to the City's sick leave incentive program. An employee earns 1/4 day paid vacation or 1/4 days' pay in lieu of excess sick leave at the employee's option. This option is only active and available when the beginning sick leave balance for each month is 60 days. The cash in lieu option is paid in December of each year. CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES D. Assets, Liabilities and Net Assets or Equity (Continued) 6. Vacation, Sick and Compensatory Benefits (Continued) Vacation, sick and compensatory benefits are considered expenditures in the year due in the governmental fund types, while in the proprietary fund types, vacation and sick pay are charged to expense when earned. All estimated vacation and compensatory benefit time is recorded when incurred in the government -wide and proprietary fund statements. 7. Long -Term Obligations In the government -wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business -type activities or proprietary fund type Statement of Net Assets. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. 8. Fund Equity In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change. 9. Net Assets Net assets represent the difference between assets and liabilities in the government -wide financial statements. Net Assets invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balance of any long-term debt used to build or acquire the capital assets. Net assets are reported as restricted in the government -wide financial statement when there are limitations on their use through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. 39 CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES D. Assets, Liabilities and Net Assets or Equity (Continued) 10. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenditures/expenses during the reporting period. Actual results could differ from those estimates. 11. Change in Accounting Principle The City changed the cash and investment footnote (Note 3.B.) presentation from weighted average maturity to segmented time. There is no financial impact as a result of this change. NOTE 2 — STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgetary Information 1. In August of each year, City staff submits to the City Council, a proposed operating budget for the fiscal year commencing the following January 1. The operating budget includes proposed expenditures and the means of financing them for the upcoming year. 2. Public hearings are conducted to obtain taxpayer comments. 3. The budget is legally enacted through passage of a resolution after obtaining taxpayer comments. 4. Budgets for the General and Special Revenue Funds are adopted on a basis consistent with U.S. generally accepted accounting principles. 5. Expenditures may not legally exceed budgeted appropriations at the department level. No fund's budget can be increased without City Council approval. The City Council may authorize transfer of budgeted amounts between departments within any fund. Management may amend budgets within a department level, so long as the total department budget is not changed. 6. Annual appropriated budgets are adopted during the year for the General and Special Revenue Funds. Annual appropriated budgets are not adopted for Debt Service Funds because effective budgetary control is alternatively achieved through bond indenture provisions. Budgetary control for Capital Projects Funds is accomplished through the use of project controls and formal appropriated budgets are not adopted. 40 CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 2 — STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgetary Information (Continued) 7. Budgeted amounts are as originally adopted or as amended by the City Council. Individual amendments were not material in relation to the original amounts budgeted. Budgeted expenditure appropriations lapse at year-end. B. Fund Balance Deficits The following funds had deficit fund balances at December 31, 2006: Major Funds: 2003A G.O. Improvement Bonds Debt Service Fund $ (376,202) Prairie Run Capital Projects Fund (861,049) City Hall Capital Projects Fund (73,594) 52nd Street Industrial Park (692,016) Nonmajor Funds: Debt Service Funds: City Hall Bonds (1,649) 1996A G.O. TIF Bonds (79,365) Capital Projects Funds: TIF No. 10 - Mold -Tech (5,399) TIF No. 11 - Land of Lakes Tile (19,774) CSAH 19 Widening (154,269) County Road 37 Traffic Light (55,567) I-94 (588) School Pedestrian Bike Trail (72,666) CSAH 19 and 57th Intersection (3,450) CSAH 19 and 50th Street (2,925) Wright County Shop Property (283) Flood Mitigation Project (2,786) These deficits will be eliminated by future levies, collections of special assessments, operating transfers and developer reimbursements. 41 CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 2 — STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY C. Excess of Expenditures Over Appropriations Expenditures exceeded appropriations during the year ended December 31, 2006 by the following amounts: Appropriations Expenditures General Fund $ 2,857,864 $ 3,301,238 NOTE 3 — DEPOSITS AND INVESTMENTS Excess $ 443,374 Cash balances of the City's funds are combined (pooled) and invested to the extent available in various investments authorized by Minnesota Statutes. Each fund's portion of this pool (or pools) is displayed on the financial statements as "cash and cash equivalents" or "investments." For purposes of identifying risk of investing public funds, the balances and related restrictions are summarized on the next page. A. Deposits As of December 31, 2006, the City had deposits as follows: Checking $ 1,564,862 Savings 2,258,941 Certificates of Deposit 843,919 Total Deposits $ 4,667,722 As of December 31, 2006, the City's bank balance was not exposed to custodial credit risk because it was insured and fully collateralized with securities held by the pledging financial institution's trust department or agent and in the City's name. 42 CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 3 — DEPOSITS AND INVESTMENTS B. Investments As of December 31, 2006, the City had the following investments: Investment Maturities Fair Less than Greater than Investment Type Value 1 Year 1-2 Years 2-5 Years 5 Years Money Market Mutual Funds $ 42,816 $ 42,816 $ - $ - $ - 4M 231,833 231,833 - - - U.S. Treasury 1,018,379 1,018,379 - - - U.S. Government Agency Securities 1,669,632 98,594 293,313 982,882 294,843 Municipal Bonds 849,564 249,573 133,618 466,373 - Brokered Certificate of Deposit 2,281,290 1,715,434 477,797 88,059 - Total Investments $6,093,514 $3,356,629 $ 904,728 $1,537,314 $ 294,843 Maximum Maturity 1-- -_- Less than One Year 46% One to Two Years 18% Two to Five Years 30% More than Five Years 0% Interest Rate Risk: In accordance with the investment policy, the City manages exposures to declines in fair values by investing 50% or more of its portfolio in investments that mature in two or less years. Concentration of Credit Risk: More than 5% of the City's investments are in: Investment Federal Home Loan Bank Note Coon Rapids, Minnesota Tax Increment B Dollars Percent of Total Invested Investment $ 1,471,413 28.99% 333,137 6.56% M, CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 3 — DEPOSITS AND INVESTMENTS B. Investments (Continued) Credit Rate Risk: The City's investments in U.S. governmental securities were all rated as AAA by Moody's and AAA by Standard & Poor's (S&P). The following are the ratings for municipal bonds: Description Moody's S & P Coon Rapids Minnesota Refunding TI Bonds AAA Coon Rapids Minnesota Refunding TI Bonds AAA St. Cloud Minn TI - Series B AA3 AA Iowa City Iowa Series B AAA Ramsey Minnesota TI - Series A Al Kirkwood Community College Iowa New AA3 AA - Cook County, Illinois School District No. 155 AAA Custodial Credit Risk — Investments: As of December 31, 2006, the City's investment balance was not exposed to custodial credit risk. Summary of cash, deposits and investments as of December 31, 2006: Petty Cash $ 250 Deposits 4,667,722 Investments 6,093,514 Total $ 10,761,486 Cash, deposits and investments are presented in the December 31, 2006 basic financial statements as follows: Statement of Net Assets: Cash and Investments $ 9,655,920 Cash in Trust 939,989 Restricted Cash in Trust 78,390 Statement of Fiduciary Net Assets: Agency Funds 87,187 Total Deposits and Investments $ 10,761,486 44 CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 4 — ACCOUNTS RECEIVABLE Accounts receivable as of year-end for the City's individual major funds, including the applicable allowances for uncollectible accounts, are as follows: Governmental Activities Closed General Capital Fund Proj ects Total Accounts Receivable $ 87,088 $ 578,027 $ 665,115 Less Allowance for Uncollectibles - (240,912) (240,912) Net Accounts Receivable - Governmental Activities $ 87,088 $ 337,115 $ 424,203 Business -Type Activities Accounts Receivable - Business -Type Activities Sanitary Sewer Water Fund Fund Storm Water Fund Total $ 352,470 $ 290,113 $ 52,918 $ 695,501 45 CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 5 — CAPITAL ASSETS Capital asset activity for the year ended December 31, 2006 was as follows: Governmental Activities: Capital Assets not being Depreciated: Land Construction in Progress Total Capital Assets not being Depreciated Capital Assets being Depreciated: Buildings Infrastructure Improvements Other than Buildings Vehicles Machinery and Equipment Total Capital Assets being Depreciated Less Accumulated Depreciation for: Buildings Infrastructure Improvements Other than Buildings Vehicles Machinery and Equipment Total Accumulated Depreciation Total Capital Assets being Depreciated, Net Restated, Beginning Ending Balance Increases Decreases Balance $ 3,732,869 $ - $ - $ 3,732,869 5,838,623 4,472,440 1,801,356 8,509,707 9,571,492 4,472,440 1,801,356 12,242,576 2,622,939 - - 2,622,939 18,771,642 616,280 - 19,387,922 518,391 - - 518,391 992,802 519,446 - 1,512,248 260,260 45,165 - 305,425 23,166,034 1,180,891 - 24,346,925 199,706 63,803 - 263,509 6,651,041 799,400 - 7,450,441 64,559 34,559 - 99,118 514,009 107,158 - 621,167 22,651 20,412 - 43,063 7,451,966 1,025,332 - 8,477,298 15,714,068 155,559 - 15,869,627 Governmental Activities Capital Assets, Net $ 25,285,560 $ 4,627,999 $ 1,801,356 $ 28,112,203 Beginning balance was restated to reflect the addition of land values (Note 14). e, CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 5 — CAPITAL ASSETS Business -Type Activities: Capital Assets not being Depreciated: Land Construction in Progress Total Capital Assets not being Depreciated Capital Assets being Depreciated: Sewer Plant and Lines Water Main Storm Sewer Building Machinery and Equipment Total Capital Assets being Depreciated Less Accumulated Depreciation for: Sewer Plant and Lines Water Mains Storm Sewer Building Machinery and Equipment Total Accumulated Depreciation Total Capital Assets being Depreciated, Net Restated, Beginning Ending Balance Increases Decreases Balance $ 190,269 $ - $ - $ 190,269 4,360,637 - 4,360,637 - 4,550,906 - 4,360,637 190,269 7,979,992 212,892 - 8,192,884 436,894 383,593 - 820,487 71,251 144,305 - 215,556 - 4,702,684 - 4,702,684 236,270 - - 236,270 8,724,407 5,443,474 - 14,167,881 1,567,286 171,768 - 1,739,054 58,799 18,933 - 77,732 1,781 5,389 - 7,170 - 112,718 - 112,718 155,790 16,960 - 172,750 1,783,656 325,768 - 2,109,424 6,940,751 5,117,706 - 12,058,457 Business -Type Activities Capital Assets, Net $ 11,491,657 $ 5,117,706 $ 4,360,637 $ 12,248,726 Beginning balance was restated to reflect additions to the Sewer System (Note 14). 47 CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 5 — CAPITAL ASSETS Depreciation expense was charged to functions/programs as follows: Governmental Activities: General Government $ 544 Public Safety 72,500 Public Works 907,378 Park and Recreation 44,910 Total Depreciation Expense - Governmental Activities $ 1,025,332 Business -Type Activities: Sewer $ 296,758 Water 23,621 Storm Sewer 5,389 Total Depreciation Expense - Business -Type Activities $ 325,768 NOTE 6 — INTERFUND TRANSFERS The composition of interfund transfers as of December 31, 2006 is as follows: Transfers In 2003A G.O. Water Closed Ice Arena Nonmajor Improvement Access Capital Locker Governmental Sanitary General Bonds Charges Projects Rooms Funds Sewer Total Transfer Out: General Fund $ $ $ $ $ $ 612,695 $ - $ 612,695 Sewer Access 27,930 38,675 269,476 1,254,004 1,590,085 Closed Capital Projects - - - 187,029 138,831 - 325,860 Nonmajor Governmental Funds 92,288 - 102,561 261,335 1,029,282 1,485,466 Water - - 1,382,767 - - - - 1,382,767 Total $ 120,218 $ 38,675 $ 1,382,767 $ 102,561 $ 448,364 $ 2,050,284 $ 1,254,004 $ 5,396,873 The purpose of the above transfers is to provide funding for capital improvement projects and capital outlay, provide funding for operating purposes and other miscellaneous items. W. CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 7 — LONG-TERM DEBT A. Components of Long -Term Liabilities Governmental Activities: Revenue Bonds: Public Facility Authority Lease Revenue Bonds, Series 1999 Public Project Lease Revenue Bonds, Series 2004 Public Project Lease Revenue Bonds, Series 2005B Total Revenue Bonds G.O. Special Assessment Bonds: G.O. Improvement Bonds, Series 1999A G.O. Improvement Bonds, Series 2003A Total G.O. Special Assessment Bonds G.O. Tax Increment Bond, Series 1996A Unamortized Charges Total Governmental Bonds Compensated Absences Total Long -Term Liabilities, Governmental Activities Business -Type Activities: Revenue Debt: Public Facility Authority, G.O. Sewer Revenue Note G.O. Lease Revenue Bonds, Series 2000A G.O. Sewer Revenue Bonds, Series 2005A Unamortized Charges Total Business -Type Activities Issue Interest Original Final Principal Due Within Date Rate Issue Maturity Outstanding One Year 07/20/99 5.00%-5.60% $ 860,000 02/01/19 $ 685,000 $ 40,000 09/09/04 3.75%-4.90% 2,100,000 02/01/25 2,070,000 75,000 12/22/05 3.30%-4.70% 3,700,000 12/01/25 3,575,000 130,000 6,330,000 245,000 07/29/99 4.10%-5.20% 1,760,000 02/01/15 400,000 40,000 08/15/03 2.00%4.15% 3,235,000 02/01/19 2,375,000 455,000 2,775,000 495,000 11/22/96 4.25%-5.40% 400,000 02/01/08 55,000 25,000 (262,575) (21,140) 8,897,425 743,860 26,222 25,208 8,923,647 769,068 10/19/93 3.32% 1,454,514 08/20/14 696,792 77,434 11/20/00 4.50%-5.25% 2,550,000 02/01/16 1,205,000 205,000 12/22/05 3.15%-4.25% 4,000,000 12/01/25 3,860,000 145,000 (85,462) (4,498) 5,676,330 422,936 Total all Long -Term Liabilities $ 14,599,977 $ 1,192,004 Long-term bonded indebtedness listed above were issued to finance acquisition and construction of capital facilities or to refinance (refund) previous bond issues. CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 7 - LONG-TERM DEBT B. Changes in Long -Term Liabilities Long-term liability activity for the year ended December 31, 2006, was as follows: Governmental Activities: Revenue Bonds G.O. Special Assessment Bonds G.O. Tax Increment Bond Unamortized Charges Compensated Absences Total Governmental Activities Business -Type Activities: G.O. Sewer Revenue Note Lease Revenue Bonds Unamortized Charges Total Business -Type Activities Total Beginning Ending Due Within Balance Additions Reductions Balance One Year $ 6,520,000 $ - $ 190,000 $ 6,330,000 $ 245,000 3,285,000 - 510,000 2,775,000 495,000 80,000 25,000 55,000 25,000 (283,715) - (21,140) (262,575) (21,140) 26,762 33,572 34,112 26,222 25,208 9,628,047 33,572 737,972 8,923,647 769,068 4,771,718 - 214,926 4,556,792 222,434 1,395,000 - 190,000 1,205,000 205,000 (89,961) - (4,499) (85,462) (4,498) 6,076,757 - 400,427 5,676,330 422,936 $ 15,704,804 $ 33,572 $ 1,138,399 $ 14,599,977 $ 1,192,004 C. Amortization Requirements The annual requirements to amortize all bonded debt outstanding are as follows: Governmental Activities Year Ending Revenue Bonds G.O. Special Assessment Bonds G.O. Tax Increment Bond December 31, Principal Interest Principal Interest Principal Interest Total 2007 $ 245,000 $ 274,796 $ 495,000 $ 90,915 $ 25,000 $ 2,295 $ 1,133,006 2008 250,000 265,399 510,000 76,247 30,000 810 1,132,456 2009 265,000 255,469 520,000 60,048 - - 1,100,517 2010 270,000 244,985 125,000 49,462 - - 689,447 2011 280,000 234,024 130,000 44,466 - - 688,490 2012-2016 1,580,000 985,039 665,000 133,050 - - 3,363,089 2017-2021 1,830,000 574,601 330,000 20,958 - - 2,755,559 2022-2026 1,610,000 213,473 - - - - 1,823,473 Total $ 6,330,000 $ 3,047,786 $ 2,775,000 $ 475,146 $ 55,000 $ 3,105 $ 12,686,037 50 CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 7 — LONG-TERM DEBT C. Amortization Requirements (Continued) Year Ended Business -Type Activities December 31, Principal Interest Total 2007 $ 427,434 $ 226,167 $ 653,601 2008 455,027 208,809 663,836 2009 287,706 194,630 482,336 2010 300,474 184,006 484,480 2011 318,336 173,543 491,879 2012-2016 1,802,815 661,162 2,463,977 2017-2021 1,115,000 358,263 1,473,263 2022-2026 1,055,000 113,245 1,168,245 Total $ 5,761,792 $ 2,119,825 $ 7,881,617 NOTE 8 — FUND BALANCES A. Designated/Reserved Fund Balance Designated and reserved fund balances are comprised of the following components: Capital Projects 2003A G.O. Closed Nonmajor Improvement Sewer Water Capital Governmental General Bonds Access Access Projects Funds Unreserved: Designated for Working Capital Designated for Capital Expenditures Reserved: Land Held for Resale Debt Service Special Revenue Total Total S 1,000,000 $ - $ - $ - $ - $ - $ 1,000,000 - - 525,000 189,000 150,380 1,539,943 2,404,323 2,735,714 - - - - 2,735,714 - 1,225,679 1,225,679 - - - - 159,771 159,771 $ 1,000,000 $ 2,735,714 $ 525,000 $ 189,000 $ 150,380 $ 2,925,393 $ 7,525,487 51 CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 9 — RISK MANAGEMENT The City purchases commercial insurance coverage through the League of Minnesota Cities Insurance Trust with other cities in the state, which is a public entity risk pool currently operating as a common risk management and insurance program. The City pays an annual premium to the League for its insurance coverage. The League is self-sustaining through commercial companies for excess claims. The City is covered through the pool for any claims incurred but unreported, but retains risk for the deductible portion of its insurance policies. The amount of these deductibles is considered immaterial to the financial statements. There were no significant reductions in insurance from the previous year or settlements in excess of insurance coverage for any of the past three fiscal years. The City's workers' compensation insurance policy is retrospectively rated. With this type of policy, final premiums are determined after loss experience is known. The amount of premium adjustment for 2006 is estimated to be immaterial based on workers' compensation rates and salaries for the year. At December 31, 2006, there were no other claims liabilities reported in the Fund based on the requirements of GASB Statement No. 10, which requires a liability for claims be reported if information prior to the issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. NOTE 10 — DEFINED BENEFIT PENSION PLANS — STATE-WIDE Public Employees' Retirement Association A. Plan Description All full-time and certain part-time employees of the City Albertville are covered by defined benefit plans administered by the Public Employees' Retirement Association of Minnesota (PERA). PERA administers the Public Employees' Retirement Fund (PERF) and the Public Employees Police and Fire Fund (PEPFF), which are cost -sharing, multiple -employer retirement plan. These Plans are established and administered in accordance with Minnesota Statutes Chapters 353 and 356. PERF members belong to either the Coordinated Plan or Basic Plan. Coordinated Plan members are covered by social security and Basic Plan members are not. All new members must participate in the Coordinated Plan. All police officers, firefighters and peace officers who qualify for membership by statute are covered by the PEPFF. PERA provides retirement benefits as well as disability benefits to members, and benefits to survivors upon death of eligible members. Benefits are established by state statute, and vest after three years of credited service. The defined retirement benefits are based on a member's highest average salary for any five successive years of allowable service, age and years of credit at termination of service. 52 CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 10 — DEFINED BENEFIT PENSION PLANS — STATE-WIDE Public Employees' Retirement Association (Continued) A. Plan Description (Continued) Two methods are used to compute benefits for PERA's Coordinated and Basic Plan members. The retiring member receives the higher of a step -rate benefit accrual formula (Method 1) or a level accrual formula (Method 2). Under Method 1, the annuity accrual rate for a Basic Plan member is 2.2% of average salary for each of the first 10 years of service and 2.7% for each remaining year. The annuity accrual rate for a Coordinated Plan member is 1.2% of average salary for each of the first 10 years and 1.7% for each remaining year. Under Method 2, the annuity accrual rate is 2.7% of average salary for Basic Plan members and 1.7% for Coordinated Plan members for each year of service. For PEPFF members, the annuity accrual rate is 3.0% for each year of service. For all PEPFF and PERF members hired prior to July 1, 1989, whose annuity is calculated using Method 1, a full annuity is available when age plus years of service equal 90. Normal retirement age is 55 for PEPFF and 65 for Basic and Coordinated Plan members hired prior to July 1, 1989. Normal retirement age for unreduced social security benefits is capped at 66 for Coordinated Plan members hired on or after July 1, 1989. A reduced retirement annuity is also available to eligible members seeking early retirement. There are different types of annuities available to members upon retirement. A single -life annuity is a lifetime annuity that ceases upon the death of the retiree -no survivor annuity is payable. There are also various types of joint and survivor annuity options available which will be payable over joint lives. Members may also leave their contributions in the Fund upon termination of public service in order to qualify for a deferred annuity at retirement age. Refunds of contributions are available at any time to members who leave public service, but before retirement benefits begin. The benefit provisions stated in the previous paragraphs of this section are current provisions and apply to active Plan participants. Vested, terminated employees who are entitled to benefits but are not yet receiving them, are bound by the provisions in effect at the time they last terminated their public service. PERA issues a publicly available financial report that includes financial statements and required supplementary information for PERF. That report may be obtained on the Internet at www.mnpera.org, by writing to PER.A at 60 Empire Drive, Suite 200, St. Paul, Minnesota 55103-2088 or by calling (651) 296-7460 or (800) 652-9026. 53 CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 10 — DEFINED BENEFIT PENSION PLANS — STATE-WIDE Public Employees' Retirement Association (Continued) B. Funding Policy Minnesota Statutes Chapter 353 sets the rates for employer and employee contributions. These Statutes are established and amended by the state legislature. The City makes annual contributions to the pension plans equal to the amount required by state statutes. PERF Basic Plan members and Coordinated Plan members were required to contribute 9.1% and 5.5%, respectively, of their annual covered salary in 2006. Contribution rates in the Coordinated Plan will increase in 2007 to 5.75%. PEPFF members were required to contribute 7.0% of their annual covered salary in 2006. That rate will increase to 7.8% in 2007. The City of Albertville is required to contribute the following percentages of annual covered payroll: 11.78% for Basic Plan PERF members, 6.0% for Coordinated Plan PERF members and 10.5% for PEPFF members. Employer contribution rates for the Coordinated Plan and PEPFF will increase to 6.25% and 11.7%, respectively, effective January 1, 2007. The City's contributions to the PERF for the years ending December 31, 2006, 2005 and 2004 were $ 34,470, $ 27,219 and $ 24,493, respectively. The City's contributions were equal to the contractually required contributions for each year as set by state statute. NOTE 11 — CONDUIT DEBT OBLIGATIONS Conduit debt obligations are certain limited -obligation revenue bonds or similar debt instruments issued for the express purpose of providing capital financing for a specific third party. The City has issued revenue bonds to provide funding to private -sector entities for projects deemed to be in the public interest. Although these bonds bear the name of the City, the City has no obligations for such debt beyond the resources provided by related leases or loans. Accordingly, the bonds are not reported as liabilities in the financial statements of the City. NOTE 12 — CONDUIT DEBT OBLIGATIONS As of December 31, 2006, the following issues were outstanding: Date Original Outstanding Name of Issue Amount December 31. 2006 Cottages of Albertville: Multi Family Housing Revenue Bonds, Series 1999A 12/23/99 $ 3,230,000 Subordinated Multi -Family Housing Revenue Bonds, Series 1999C 3,180,000 09/30/99 425,000 425,000 CITY OF ALBERTVILLE Wright County, Minnesota NOTES TO THE FINANCIAL STATEMENTS December 31, 2006 NOTE 13 — COMMITTMENTS The City has entered into several public improvement projects contracts. The remaining commitments under these contracts at December 31, 2006 follow: Original Commitment Project Contract Remaining 2004 Prairie Run $ 1,575,734 $ 217,718 2004 School Pedestrian Trail 353,877 32,084 City Hall 3,091,000 4,411 Ice Arena Locker Arena 650,322 1,650 Industrial Park Improvements 529,139 26,457 Total $ 282,320 NOTE 14 — PRIOR PERIOD ADJUSTMENTS Net assets for governmental activities were restated to reflect City owned land valued at $ 2,387,326 and infrastructure overstated at $ 544,966. Net assets for the Sewer Fund were restated by $ 233,921 to reflect assets not captured in a prior year. Within the fund financial statements a prior period adjustment of $ 2,827,106 was recorded to reflect land held for resale previously classified as capitalized land. A $ (41,392) adjustment was recorded to reflect additional project liabilities and fund balance in the Closed Capital Projects Fund was restated by $ 97,632 to reflect a reduction in contracts payable for contracts that were paid in full during 2005. NOTE 15 — LAWSUITS/CONTINGENT LIABILITIES Subsequent to year-end and at December 31, 2006, the City was involved as a defendant in two lawsuits. Both lawsuits, unless settled, are expected to go to trial in December of 2007. The outcome and any potential contingent liability is unknown. 55 (THIS PAGE LEFT BLANK INTENTIONALLY SUPPLEMENTARY INFORMATION 56 CITY OF ALBERTVILLE Wright County, Minnesota COMBINING BALANCE SHEET - NONMAJOR GOVERNMENTAL FUNDS December 31, 2006 Special Revenue Debt Service 1993A G.O. 1992A G.O. Improvement Revolving Loan Closed Bond Improvement Refunding (203) Issues (300) (322) (324) ASSETS: Cash and Investments (Including Cash Equivalents) $ 159,771 $ 87,756 $ 14,344 $ 77,577 Cash in Trust - _ _ - Restricted Cash in Trust - - - _ Taxes Receivable - Delinquent - 61 56 - Special Assessment Receivable: Delinquent - - _ _ Deferred - 2,553 - - Due from Other Governments - 1 - - Notes Receivable 21,200 - - - Total Assets $ 180,971 $ 90,371 $ 14,400 $ 77,577 LIABILITIES AND FUND BALANCES: Liabilities: Cash Overdraft $ - $ - $ - $ - Accounts and Contracts Payable - - Deferred Revenue 21,200 2,614 56 - Total Liabilities 21,200 2,614 56 - Fund Balances: Reserved for: Debt Service - 87,757 14,344 77,577 Special Revenue 159,771 - - _ Unreserved, Reported in: Debt Service - Undesignated - Capital Projects - Designated Capital Projects - Undesignated - - - - Total Fund Balances 159,771 87,757 14,344 77,577 Total Liabilities and Fund Balances $ 180,971 $ 90,371 $ 14,400 $ 77,577 57 Debt Service 1996A G.O. 1999 Lease 1999A G.O. 2005 Lease City Hall TIF Bonds Revenue Improvement Revenue Bonds (341) (353) Bonds (354) Bonds (355) Bonds (358) $ - $ - $ 4,227 $ 293,463 - 16,847 - - - 78,390 - 81 420 2,349 1,784 13,819 - 106,574 ill 940 166 Total Debt Service $ 650,202 $ 1,127,569 - 16,847 - 78,390 5,956 10,707 - 122,946 1,766 2,984 $ 81 $ 14,350 $ 102,753 $ 401,987 $ 657,924 $ 1,359,443 $ 1,649 $ 79,476 $ - $ - $ - $ 81,125 81 14,239 2,349 108,358 5,956 133,653 1,730 93,715 2,349 108,358 5,956 214,778 - 100,404 293,629 651,968 1,225,679 (1,649) (79,365) - - - (81,014) (1,649) (79,365) 100,404 293,629 651,968 1,144,665 $ 81 $ 14,350 $ 102,753 $ 401,987 $ 657,924 $ 1,359,443 58 CITY OF ALBERTVILLE Wright County, Minnesota COMBINING BALANCE SHEET - NONMAJOR GOVERNMENTAL FUNDS December 31, 2006 Capital Projects TIF No. 8 Vetsch Capital Outlay TIF No. 7 Senior Custom Cabinets Reserve (102) Park Fund (201) Housing (407) (408) ASSETS: Cash and Investments (Including Cash Equivalents) $ 982,077 $ 249,487 $ 32,109 $ 5,242 Cash in Trust - - - - Restricted Cash in Trust - - - - Taxes Receivable - Delinquent - - - - Special Assessment Receivable: Delinquent - - - - Deferred - - - - Due from Other Governments - - - - Notes Receivable - - - - Total Assets $ 982,077 $ 249,487 $ 32,109 $ 5,242 LIABILITIES AND FUND BALANCES: Liabilities: Cash Overdraft - Accounts and Contracts Payable - - - - Deferred Revenue - - - - Total Liabilities - - - - Fund Balances: Reserved for: Debt Service - - - - Special Revenue - - - - Unreserved, Reported in: Debt Service - Undesignated - - - - Capital Projects - Designated 982,077 249,487 32,109 5,242 Capital Projects - Undesignated - - - - Total Fund Balances 982,077 249,487 32,109 5,242 Total Liabilities and Fund Balances $ 982,077 $ 249,487 $ 32,109 $ 5,242 59 Capital Projects School TIF No. 9 TIF No. 10 TIF No. 11 CSAH 19 County Road Pedestrian Barthel Bus Mold -Tech Land of Lakes Widening 37 Traffic Bike Trail (409) (410) Tile (411) (465) Light (467) I-94 (468) (476, 487) $ 10,853 $ - $ - $ - $ - $ 10,902 $ 8,290 - - - - - - $ 19,143 $ - $ - $ - $ - $ 10,902 $ - $ - $ 5,399 $ 19,774 $ 154,269 $ 55,567 $ - $ 56,576 - - - - 11,490 16,090 5,399 19,774 154,269 55,567 11,490 72,666 19,143 - - - - - - - (5,399) (19,774) (154,269) (55,567) (588) (72,666) 19,143 (5,399) (19,774) (154,269) (55,567) (588) (72,666) $ 19,143 $ - $ - $ - $ - $ 10,902 $ - ME ASSETS: Cash and Investments (Including Cash Equivalents) Cash in Trust Restricted Cash in Trust Taxes Receivable - Delinquent Special Assessment Receivable: Delinquent Deferred Due from Other Governments Notes Receivable Total Assets LIABILITIES AND FUND BALANCES: Liabilities: Cash Overdraft Accounts and Contracts Payable Deferred Revenue Total Liabilities Fund Balances: Reserved for: Debt Service Special Revenue Unreserved, Reported in: Debt Service - Undesignated Capital Projects - Designated Capital Projects - Undesignated Total Fund Balances Total Liabilities and Fund Balances CITY OF ALBERTVILLE Wright County, Minnesota COMBINING BALANCE SHEET - NONMAJOR GOVERNMENTAL FUNDS December 31, 2006 CSAH 19 and CSAH 19 and Wright County 57th Intersection 50th Street Shop Property 70th Street/ (493) (494) (495) Maclver(497) $ 248,150 73,449 122,011 3,735 $ 447,345 $ 3,121 $ 1,414 $ 283 $ - 329 1,511 - - - - - 195,460 3,450 2,925 283 195,460 - - - 251,885 (3,450) (2,925) (283) - (3,450) (2,925) (283) 251,885 $ - $ - $ - $ 447,345 IfE Capital Projects Flood Total Mitigation Total Capital Governmental Project (498) Projects Funds $ - $ 1,538,820 $ 2,826,160 - 16,847 - - 78,390 10,707 73,449 73,449 122,011 244,957 - 12,025 15,009 - 21,200 $ - $ 1,746,305 $ 3,286,719 $ 2,786 $ 299,189 $ 380,314 - 29,420 29,420 - 195,460 350,313 2,786 524,069 760,047 - - 1,225,679 159,771 - - (81,014) - 1,539,943 1,539,943 (2,786) (317,707) (317,707) (2,786) 1,222,236 2,526,672 $ - $ 1,746,305 $ 3,286,719 62 CITY OF ALBERTVILLE Wright County, Minnesota COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - NONMAJOR GOVERNMENTAL FUNDS For the Year Ended December 31, 2006 REVENUES: Taxes Tax Increments Special Assessments Intergovernmental Charges for Services Miscellaneous: Investment Income Miscellaneous Total Revenues EXPENDITURES: Current: Park and Recreation Economic Development Debt Service: Principal Interest and Other Charges Capital Outlay: Public Works Park and Recreation Total Expenditures Excess of Revenues Over (Under) Expenditures OTHER FINANCING SOURCES (USES): Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances FUND BALANCES: Beginning of Year, As Previously Stated Prior Period Adjustment Beginning of Year, Restated End of Year Special Revenue Debt Service 1993A G.O. 1992A G.O. Improvement Revolving Loan Closed Bond Improvement Refunding (203) Issues (300) (322) (324) $ - $ 50 $ - $ - - 2,160 - - 2,940 1,606 269 1,458 37,879 - - - 40,819 3,816 269 1,458 - - - 20,000 - - - 1,073 - - - 21,073 40,819 3,816 269 (19,615) 40,819 3,816 269 (19,615) 118,952 83,941 14,075 97,192 118,952 83,941 14,075 97,192 $ 159,771 $ 87,757 $ 14,344 $ 77,577 63 Debt Service 1996A G.O. 1999 Lease 1999A G.O. 2005 Lease 2005 City City Hall TIF Bonds Revenue Improvement Revenue Hall Revenue Total Debt Bonds (341) (353) Bonds (354) Bonds (355) Bonds (358) Bonds (359) Service $ - $ 10,410 $ 55,907 $ 39,323 $ 154,239 $ - $ 259,929 - 19,177 - 22,754 - - 44,091 - 70 370 263 1,030 - 1,733 - - 3,835 4,989 9,474 - 21,631 - 29,657 60,112 67,329 164,743 - 327,384 - 25,000 35,000 40,000 30,000 125,000 275,000 - 4,076 40,056 21,456 90,875 153,478 311,014 - 29,076 61,456 120,875 278,478 586,014 75,056 - 581 (14,944) 5,873 43,868 (278,478) (258,630) - - - - - 269,477 269,477 - - - - - 269,477 269,477 - 581 (14,944) 5,873 43,868 (9,001) 10,847 (1,649) (79,946) 115,348 287,756 608,100 9,001 1,133,818 (1,649) (79,946) 115,348 287,756 608,100 9,001 1,133,818 $ (1,649) $ (79,365) $ 100,404 $ 293,629 $ 651,968 $ - $ 1,144,665 64 CITY OF ALBERTVILLE Wright County, Minnesota COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - NONMAJOR GOVERNMENTAL FUNDS For the Year Ended December 31, 2006 Capital Projects TIF No. 8 Capital TIF No. 7 Vetsch Outlay Senior Custom Reserve Park Fund Housing Cabinets (102) (201) (407) (408) REVENUES: Taxes $ - $ _ $ _ $ _ Tax Increments - - 28,941 11,325 Special Assessments - _ _ _ Intergovernmental - _ _ Charges for Services - 25,012 - Miscellaneous: Investment Income 15,047 23,453 317 - Miscellaneous - - - - Total Revenues 15,047 48,465 29,258 11,325 EXPENDITURES: Current: Park and Recreation - - - - Economic Development - - 12,987 5,662 Debt Service: Principal - - - - Interest and Other Charges - - - - Capital Outlay: Public Works 56,553 - - - Park and Recreation - 2,894 - - Total Expenditures 56,553 2,894 12,987 5,662 Excess of Revenues Over (Under) Expenditures (41,506) 45,571 16,271 5,663 OTHER FINANCING SOURCES (USES): Transfers In 512,695 - - - Transfers Out (310,450) (1,067,204) - - Total Other Financing Sources (Uses) 202,245 (1,067,204) - - Net Change in Fund Balances 160,739 (1,021,633) 16,271 5,663 FUND BALANCES: Beginning of Year, As Previously Stated 821,338 1,271,120 15,838 (421) Prior Period Adjustment - - - - Beginning of Year, Restated 821,338 1,271,120 15,838 (421) End of Year $ 982,077 $ 249,487 $ 32,109 $ 5,242 65 ects TIF No. 11 TIF No. 9 TIF No. 10 Land of NW CSAH 19 County Road Barthel Bus Mold -Tech Lakes Tile Commercial Widening Public Works 37 Traffic (409) (410) (411) Park (463) (465) Facility (466) Light (467) I-94 (468) 16,580 11,205 30,495 - - - - - - - - - 692 - - - - - - - - - 47,385 - 16,580 11,205 30,495 - 692 - 47,385 - 5,603 30,495 5,603 30,495 2,400 1,671 2,400 1,671 178,695 178,695 16,580 5,602 - - (1,708) (1,671) 47,385 (178,695) - 109,657 - 1,671 - 408,779 - (5,251) (102,561) - - - - - - 104,406 (102,561) 1,671 408,779 16,580 5,602 - 104,406 (104,269)_ - 47,385 230,084 2,563 (11,001) (19,774) (104,406) - - (102,952) (230,672) - - - - (50,000) - - 2,563 (11,001) (19,774) (104,406) (50,000) - (102,952) (230,672) $ 19,143 $ (5,399) $ (19,774) $ - $ (154,269) $ - $ (55,567) $ (588) 66 CITY OF ALBERTVILLE Wright County, Minnesota COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - NONMAJOR GOVERNMENTAL FUNDS For the Year Ended December 31, 2006 Capital Projects School Wright - Wright County Pedestrian Hennepin Transportation CSAH 37 Bike Trail Substation (469) Trails (470) (476, 487) (481) REVENUES: Taxes $ _ $ _ $ _ $ _ Tax Increments - - _ _ Special Assessments _ _ _ _ Intergovernmental - _ _ _ Charges for Services - _ _ _ Miscellaneous: Investment Income _ _ _ _ Miscellaneous - - 14,000 - Total Revenues - - 14,000 - EXPENDITURES: Current: Park and Recreation - - 68,763 - Economic Development - - - _ Debt Service: Principal - _ _ _ Interest and Other Charges - - _ Capital Outlay: Public Works - 40,170 - - Park and Recreation _ _ _ _ Total Expenditures - 40,170 68,763 - Excess of Revenues Over (Under) Expenditures - (40,170) (54,763) - OTHER FINANCING SOURCES (USES): Transfers In 27,549 261,816 323,072 1,624 Transfers Out - - _ _ Total Other Financing Sources (Uses) 27,549 261,816 323,072 1,624 Net Change in Fund Balances 27,549 221,646 268,309 1,624 FUND BALANCES: Beginning of Year, As Previously Stated (27,549) (221,646) (340,975) (1,624) Prior Period Adjustment Beginning of Year, Restated (27,549) (221,646) (340,975) (1,624) End of Year $ - $ - $ (72,666) $ - 67 Capital Projects CSAH 19 Wright Total and 57th CSAH 19 County Shop 70th Street/ Flood Nonmajor Intersection and 50th Property Hockey Rink Maclver Mitigation Total Capital Governmental (493) Street (494) (495) (496) (497) Project (498) Projects Funds $ - $ - $ - $ - $ - $ - $ - $ 259,929 - - - - - - 98,546 98,546 - - - - 11,080 - 11,080 55,171 - - - - - - - 1,733 - - - - - - 25,012 25,012 - - - - 5,278 - 44,787 69,358 - - - - - - 61,385 99,264 - - - - 16,358 - 240,810 609,013 - - - - - - 68,763 68,763 - - - - - - 54,747 54,747 - - - - - - - 275,000 - - - - - - - 311,014 3,450 2,925 283 - 455 2,786 289,388 289,388 - - - 421 - - 3,315 3,315 31450 2,925 283 421 455 2,786 416,213 1,002,227 (3,450) (2,925) (283) (421) 15,903 (2,786) (175,403) (393,214) - - - 133,944 - - 1,780,807 2,050,284 - - - - - - (1,485,466) (1,485,466) - - - 133,944 - - 295,341 564,818 (3,450) (2,925) (283) 133,523 15,903 (2,786) 119,938 171,604 - - - (133,523) 235,982 1,152,298 2,405,068 - - - - - - (50,000) (50,000) - - - (133,523) 235,982 - 1,102,298 2,355,068 $ (3,450) $ (2,925) $ (283) $ - $ 251,885 $ (2,786) $ 1,222,236 $ 2,526,672 68 CITY OF ALBERTVILLE Wright County, Minnesota STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - GENERAL FUND For the Year Ended December 31, 2006 REVENUES: Taxes Licenses and Permits Intergovernmental Revenue: Market Value Credit Fire Aid Police Aid Other Grants and Aids Total Intergovernmental Revenue Charges for Services Fines and Forfeitures Miscellaneous Revenues: Investment Income Miscellaneous Total Miscellaneous Total Revenues EXPENDITURES: General Government: Mayor and Council Administrative and Finance Other General Government Capital Outlay Total General Government Public Safety: Police: Current Total Police Fire: Current Capital Outlay Total Fire Building Inspection: Current Capital Outlay Total Building Inspection Total Public Safety Budgeted Amounts Original Final $ 1,735,899 $ 1,735,899 551,940 551,940 Variance with Final Budget - Positive Actual Amounts (Negative) $ 1,620,927 $ (114,972) 487,132 (64,808) - - 10,815 10,815 50,000 50,000 49,376 (624) 14,000 14,000 38,482 24,482 10,150 10,150 16,855 6,705 74,150 74,150 115,528 41,378 489,228 489,228 645,272 156,044 100 100 3,702 3,602 75,000 75,000 180,147 105,147 10,000 10,000 179,430 169,430 85,000 85,000 359,577 274,577 2,936,317 2,936,317 3,232,138 295,821 38,625 38,625 41,164 (2,539) 381,958 381,958 395,624 (13,666) 354,384 354,384 488,244 (133,860) 153,000 153,000 10,796 142,204 927,967 927,967 935,828 (7,861) 440,000 440,000 438,000 2,000 440,000 440,000 438,000 2,000 310,127 310,127 231,424 78,703 38,000 38,000 500,504 (462,504) 348,127 348,127 731,928 (383,801) 433,040 433,040 410,622 22,418 15,400 15,400 2,041 13,359 448,440 448,440 412,663 35,777 1,236,567 1,236,567 1,582,591 (346,024) 69 CITY OF ALBERTVILLE Wright County, Minnesota STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - GENERAL FUND For the Year Ended December 31, 2006 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual Amounts (Negative) EXPENDITURES: Public Works: Streets and Highways: Street Maintenance and Storm Sewers $ 357,771 $ 357,771 $ 476,772 $ (119,001) Street Lighting 48,000 48,000 61,276 (13,276) Street - Other Capital Outlay 37,500 37,500 22,895 14,605 Total Streets and Highways 443,271 443,271 560,943 (117,672) Sanitation: Garbage and Other Refuse Collection and Disposal 40,000 40,000 44,528 (4,528) Total Sanitation 40,000 40,000 44,528 (4,528) Total Public Works 483,271 483,271 605,471 (122,200) Park and Recreation: Current 158,559 158,559 149,145 9,414 Capital Outlay 47,500 47,500 23,881 23,619 Total Parks and Recreation 206,059 206,059 173,026 33,033 Economic Development: Current 4,000 4,000 4,322 (322) Total Expenditures 2,857,864 2,857,864 3,301,238 (443,374) Excess of Revenues Over (Under) Expenditures 78,453 78,453 (69,100) (147,553) OTHER FINANCING SOURCES (USES) Transfers In - - 120,218 120,218 Transfers Out - - (612,695) (612,695) Total Other Financing Sources (Uses) - - (492,477) (492,477) Net Change in Fund Balances $ 78,453 $ 78,453 (561,577) $ (640,030) FUND BALANCES: Beginning of Year 2,110,581 End of Year $ 1,549,004 70 KDV KERN• DLWENTER-VIERS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF THE FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT A UDITING STANDARDS April 27, 2007 Honorable Mayor and Members of the City Council City of Albertville Albertville, Minnesota We have audited the financial statements of the governmental activities, the business -type activities, each major fund and the aggregate remaining fund information of the City of Silver Bay, Minnesota, as of and for the year ended December 31, 2006, and have issued our report thereon dated April 27, 2007. We conducted our audit in accordance with U.S. generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. INTERNAL CONTROL OVER FINANCIAL REPORTING In planning and performing our audit, we considered the City's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements but not for the purpose of expressing an opinion on the effectiveness of the City's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over financial reporting. Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses. However, as discussed on the following page, we identified certain deficiencies in internal control over financial reporting that we consider to be significant deficiencies. 71 V+,D_V KERN DEWE N'rER VIERS A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course or performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity's ability to initiate, authorize, record, process or report financial data reliably in accordance with the regulatory basis of accounting such that there is more than a remote likelihood that a misstatement of the City's financial statements that is more than inconsequential will not be detected by the City's internal control. We consider the deficiencies described in the accompanying Schedule of Findings on Legal Compliance and Internal Controls as Audit Findings 06-04, 06-05 and 06-06 to be significant deficiencies in internal control over financial reporting. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the entity's internal control. We consider the deficiencies described in the accompanying Schedule of Findings on Legal Compliance and Internal Controls as Audit Findings 06-01 and 06-02 to be material weaknesses in internal control over financial reporting. Our consideration of the internal control over financial reporting for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in the internal control that might be significant deficiencies and, accordingly, would not necessarily disclose all significant deficiencies that are also considered to be material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. COMPLIANCE AND OTHER MATTERS As part of obtaining reasonable assurance about whether the City's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. We also noted certain additional matters that we reported to management of the City in a separate letter dated April 27, 2007. This report is intended solely for the information and use of the City Council, management, federal and state oversight awarding agencies and pass -through entities and is not intended to be and should not be used by anyone other than these specified parties. T i eh, rc , /)t !tile / L, l C i &/ 1 rc /-- i c✓ KERN, DEWENTER, VIERE, LTD. St. Cloud, Minnesota 72 KERN • DEWENTER• VIERE REPORT ON LEGAL COMPLIANCE April 27, 2007 Honorable Mayor and Members of the City Council City of Albertville Albertville, Minnesota We have audited the financial statements of the governmental activities, business -type activities, each major fund and the aggregate remaining fund information of the City of Albertville, Minnesota, as of and for the year ended December 31, 2006, and have issued our report thereon dated April 27, 2007. We conducted our audit in accordance with U.S. generally accepted auditing standards and the provisions of the Minnesota Legal Compliance Audit Guide for Local Government, promulgated by the State Auditor pursuant to Minnesota Statutes Sec. 6.65. Accordingly, the audit included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. The Minnesota Legal Compliance Audit Guide for Local Government covers seven main categories of compliance to be tested: contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements, miscellaneous provisions and tax increment financing. Our study included all of the listed categories. The results of our tests indicate that for the items tested, the City of Albertville, Minnesota, complied with the material terms and conditions of applicable legal provisions, except as described in the Schedule of Findings on Legal Compliance and Internal Controls. This report is intended solely for the information and use of the City Council, management and the Office of the State Auditor, and is not intended to be and should not be used by anyone other than these specified parties. L CeAc- KERN, DEWENTER, VIERE, LTD. St. Cloud, Minnesota 73 CITY OF ALBERTVILLE Wright County, Minnesota SCHEDULE OF FINDINGS ON LEGAL COMPLIANCE AND INTERNAL CONTROL Year Ended December 31, 2006 CURRENT AND PRIOR YEAR LEGAL COMPLIANCE FINDINGS: During our audit, we noted there was an expenditure to purchase employee gift certificates. Expenditures by a city should meet a public purpose test. The Minnesota Attorney General's Office has the opinion that payments for employee appreciation do not qualify as a public purpose expenditure. We recommend the City refrain from paying for items that do not meet a public purpose. PRIOR YEAR LEGAL COMPLIANCE FINDING: According to Minnesota Statutes 471.425, Subd. 4a, requires contracts of a municipality to have the prime contractor pay any subcontractor within 10 days of the prime contractor's receipt of payment. The contract also must require that the prime contractor pay interest at the rate of 1.5% per month or any part of a month to the subcontractor for any undisputed amount not paid to the subcontractor within the 10 days. For the contract entered into during fiscal year 2005 for the Wastewater Treatment Plant Phase II Expansion, the City did not include this verbiage in the contract. 74 CITY OF ALBERTVILLE Wright County, Minnesota SCHEDULE OF FINDINGS ON LEGAL COMPLIANCE AND INTERNAL CONTROL Year Ended December 31, 2006 CURRENT YEAR INTERNAL CONTROL FINDINGS: Material Weakness Audit Finding 06-01 — Material Audit Adjustments We proposed a number of audit adjustments that we considered both individually and in the aggregate, to be quantitatively material to the financial statements. The audit adjustments we proposed that were material to the financial statements related to reclassifications of capital assets, investments and related revenue, receivables, property taxes, special assessments, debt and accounts/contracts payable and reclassification of back dated checks as accounts payable. In addition, KDV drafted the financial statements for the City. These financial statements, including disclosures, were reviewed by City management and they have taken responsibility for them; however, we believe City personnel would require additional training in U.S. generally accepted accounting principles to adequately apply them internally. Audit Finding 06-02 — Prior Period Adjustments Prior period adjustments were proposed to correct prior financial statements. In the Sewer Fund the adjustments were for capital assets that were not recorded in previous years that were identified during our audit. In the Closed Capital Projects Fund contracts payable was recorded in error for projects completed and paid for as of December 31, 2005. In the government -wide financial statements the prior period adjustment was due to construction in progress that was previously capitalized as a capital asset, essentially recording the asset twice. The financial statements are the responsibility of the City Council and management's controls should be implemented to properly identify completed projects and the appropriate presentation of these items as it relates to the financial statements. 75 CITY OF ALBERTVILLE Wright County, Minnesota SCHEDULE OF FINDINGS ON LEGAL COMPLIANCE AND INTERNAL CONTROL Year Ended December 31, 2006 CURRENT YEAR INTERNAL CONTROL FINDINGS: Significant Deficiency Audit Finding 06-03 — Lack of Segregation of Accounting Duties During the year ended December 31, 2006, the City had a lack of segregation of accounting duties due to a limited number of office employees. Although this meets the definition of a "significant deficiency," it may not be practical to correct since the costs of obtaining desirable segregation of accounting duties may exceed benefits that could be derived. • The Finance Director receives the bank statement and initiates and posts journal entries. The Finance Director also initiates and posts wire transfers without approval or review. • The Finance Director receives the investment statements, records maturities and issuances of new investments and posts entries into the accounting system for interest receivable, revenue and market value changes in investments. • The Finance Director maintains and reviews vacation time, sick time and compensatory time accrual accounts. • The Finance Director enters invoices into the accounting system, maintains the invoices for payment and matches check summary with summary of invoices. • The Finance Director matches the purchase requisition and invoice, approves invoices for payment, posts the payments to the general ledger and is responsible for the signature stamp. In addition to having responsibilities in the cycles listed above, the City's Finance Director has full general ledger access and the ability to write and post journal entries. While we believe this access is necessary to efficiently perform the financial duties required, this access has the ability to override many of the controls and segregation that the city has in place. Audit Finding 06-04 — Balance Cash on a Timely Basis/Review and Approval of Reconciliation During our audit, we noted cash balances are not reconciled to the general ledger. It is critical to ensure cash is reconciled on a monthly basis. Failure to reconcile these accounts on a monthly basis can generate mispostings and inaccurate accounting records and does not provide current reliable cash balance information for the City Council to gauge expenditure needs. We recommend cash balances be reconciled to the general ledger on a monthly basis, and all variances be investigated. Further, we recommend that the reconciliation of the investments include specific procedures for identifying the changes in market value and investment income and these be recorded timely. 76 CITY OF ALBERTVILLE Wright County, Minnesota SCHEDULE OF FINDINGS ON LEGAL COMPLIANCE AND INTERNAL CONTROL Year Ended December 31, 2006 CURRENT YEAR INTERNAL CONTROL FINDINGS: Significant Deficiency Audit Finding 06-05 — Reconcile Withholding Accounts During our audit, we noted the payroll withholding accounts on the City's financial records are not reconciled. All payroll withholding accounts should be reconciled on a regular basis to ensure proper withholding amounts are posted to the general ledger and paid. We recommend the Finance Director reconcile the payroll withholding accounts monthly to ensure the proper balances are recorded. The monthly reconciliations should be reviewed for accuracy by another City employee (City Clerk or City Administrator). The reconciliations should include signature blocks for the preparer and the reviewer. 77 CITY OF ALBERTVILLE Wright County, Minnesota Management Letter For the Fiscal Year Ended December 31, 2006 KERN • DEWENTER•VIERE April 27, 2007 Honorable Mayor and Members of the City Council City of Albertville Albertville, Minnesota The accompanying memorandum includes financial trend information for your City and suggestions for improvement of accounting procedures and internal accounting control measures that came to our attention as a result of our audit of the basic financial statements of the City of Albertville, Minnesota, for the year ended December 31, 2006. The matters discussed herein were considered by us during our audit and they do not modify the opinion expressed in our Independent Auditors' Report dated April 27, 2007, on such statements. In planning and performing our audit of the financial statements of the City of Albertville, Minnesota as of and for the year ended December 31, 2006, in accordance with U.S. generally accepted auditing standards, we considered the City's internal control over financial reporting (internal control) as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. Also, projection of any evaluation of the internal control to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or the degree of compliance may deteriorate. However, as discussed below, we identified certain deficiencies in internal control that we consider to be significant deficiencies and other deficiencies that we consider to be material weaknesses. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the City's ability to initiate, authorize, record, process or report financial data reliably in accordance with U.S. generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the City's financial statements that is more than inconsequential will not be prevented or detected by the City's internal control. We consider the following deficiencies to be significant deficiencies in internal control: • Lack of Segregation of Accounting Duties • Cash did not balance to General Ledger at year-end • Withholding Accounts are not reconciled on a regular basis Y\D-V KERN-DEWENTER-V[ERE A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the City's internal control. We believe the following deficiency constitutes a material weakness. • Material Adjustments • Prior Period Adjustments The accompanying memorandum includes financial trend information for your City and recommendations for improvement of accounting procedures and internal accounting control measures that came to our attention as a result of our audit of the basic financial statements of Albertville, Minnesota, for the year ended December 31, 2006. The matters discussed herein were considered by us during our audit and they do not modify the opinion expressed in our Independent Auditors' Report dated April 27, 2007, on such statements. This report is intended solely for the information and use of the City's management, City Council and federal and state oversight agencies, and others within the City and is not intended to be and should not be used by anyone other than these specified parties. We would like to express our appreciation for the cooperation extended to us by the management and employees of the City during our audit. KERN, DEWENTER, VIERE, LTD. St. Cloud, Minnesota 2 CITY OF ALBERTVILLE Wright County, Minnesota MATTERS OF COMMUNCIATION December 31, 2006 We have audited the basic financial statements of the City of Albertville, Minnesota, for the year ended December 31, 2006 and have issued our report dated April 27, 2007. Professional standards require that we provide you with the following information related to our audit. THE AUDITOR'S RESPONSIBILITY UNDER U.S. GENERALLY ACCEPTED AUDITING STANDARDS AND GO VERNMENT A UDITING STANDARDS As stated in our audit engagement letter, our responsibility, as described by professional standards, is to plan and perform our audit to obtain reasonable, but not absolute, assurance that the basic financial statements are free of material misstatement and are fairly presented in accordance with U.S. generally accepted accounting principles. Because an audit is designed to provide reasonable, but not absolute, assurance and because we did not perform a detailed examination of all transactions, there is a risk that material misstatements may exist and not be detected by us. As part of our audit, we considered the internal control of the City. Such considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. SIGNIFICANT ACCOUNTING POLICIES Management has the responsibility for selection and use of appropriate accounting policies. In accordance with the terms of our engagement letter, we will advise management about the appropriateness of accounting policies and their application. The significant accounting policies used by the City are described in Note 1 of the financial statements. We noted no significant unusual transactions and one significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. MANAGEMENT JUDGMENTS AND ACCOUNTING ESTIMATES Accounting estimates are an integral part of the basic financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the basic financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimate affecting the financial statements was: • Depreciation — The City is currently depreciating its capital assets over their estimated useful lives, as determined by management, using the straight-line method. • Expense Allocation — Certain expenses are allocated to functions based on an estimate of the benefit to that particular function. Examples are salaries, benefits and supplies. We evaluated the key factors and assumptions used to develop the above estimate in determining that they are reasonable in relation to the financial statements taken as a whole. 3 CITY OF ALBERTVILLE Wright County, Minnesota MATTERS OF COMMUNCIATION December 31, 2006 SIGNIFICANT AUDIT ADJUSTMENTS An audit adjustment, whether or not recorded by the City, is a proposed correction of the basic financial statements that, in our judgment, may not have been detected except through our auditing procedures performed. Audit adjustments, individually or in the aggregate, may have a significant effect on the City's financial reporting process. Matters underlying adjustments proposed by us but not recorded by the City could potentially cause future financial statements to be materially misstated, even though we may have concluded that the adjustments are not material to the current financial statements. We proposed significant audit adjustments in the following areas: capital assets, investments and related revenue, receivables, property taxes, special assessments, debt and accounts/contracts payable. All entries proposed by us were recorded by the City. DISAGREEMENTS WITH MANAGEMENT Disagreements with management, whether or not satisfactorily resolved, are defined as matters that individually or in the aggregate could be significant to the City's financial statements or the auditors' report. Disagreements may occasionally arise over the application of accounting principles to the City's specific transactions and events and the basis for management's judgments about accounting estimates. Disagreements may also arise regarding the scope of the audit, disclosures to be included in the City's financial statements, and the wording of the auditors' report. No such disagreements with management occurred during the course of our audit. CONSULTATIONS WITH OTHER ACCOUNTANTS In some cases, management may decide to consult with other accountants about auditing and accounting matters. If a consultation involves application of an accounting principle to the City's financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. We are aware of no consultations by the City's management with other accountants during the course of our audit. MAJOR ISSUES DISCUSSED WITH MANAGEMENT PRIOR TO RETENTION We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management prior to retention as the City's auditors. These discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT We encountered no difficulties in dealing with management related to the performance of our audit. 4 CITY OF ALBERTVILLE Wright County, Minnesota LEGAL COMPLIANCE FINDING December 31, 2006 ALL CITY DISBURSEMENTS MUST BE PUBLIC PURPOSE EXPENDITURES During our audit, we noted there was an expenditure made to purchase employee gift certificates. Expenditures by a city should meet a public purpose test. The Minnesota Attorney General's Office has the opinion that payments for employee appreciation do not qualify as public purpose expenditures. We recommend the City refrain from paying for items that are not for a public purpose. 5 CITY OF ALBERTVILLE Wright County, Minnesota MATERIAL WEAKNESSES December 31, 2006 MATERIAL AUDIT ADJUSTMENTS We proposed a number of audit adjustments that we considered both individually and in the aggregate, to be quantitatively material to the financial statements. The audit adjustments we proposed that were material to the financial statements related to reclassifications of capital assets, investments and related revenue, receivables, special assessments, property taxes, debt and accounts/contracts payable and reclassification of back dated checks as accounts payable. In addition, KDV drafted the financial statements for the City. These financial statements, including disclosures, were reviewed by City management and they have taken responsibility for them; however, we believe City personnel would require additional training in U.S. generally accepted accounting principles to adequately apply them internally. PRIOR PERIOD ADJUSTMENTS Prior period adjustments were proposed to correct prior financial statements. In the Sewer Fund, the adjustments were for capital assets not recorded in previous years that were identified during our audit. In the closed Capital Project Fund, contracts payable was recorded in error for projects completed and paid for as of December 31, 2005. In the government -wide financial statements, the prior period adjustment was due to construction in progress that was previously capitalized as a capital asset, essentially recording the asset twice. The financial statements are the responsibility of the City Council and management. Controls should be implemented to properly identify completed projects and the appropriate presentation of these items as it relates to the financial statements. rel CITY OF ALBERTVILLE Wright County, Minnesota SIGNIFICANT DEFICIENCIES December 31, 2006 LACK OF SEGREGATION OF ACCOUNTING DUTIES During the year ended December 31, 2006, the City had a lack of segregation of accounting duties due to a limited number of office employees. Although this meets the definition of a "significant deficiency," it may not be practical to correct since the costs of obtaining desirable segregation of accounting duties may exceed benefits that could be derived. • The Finance Director receives the bank statement and initiates and posts journal entries. The Finance Director also initiates and posts wire transfers without approval or review. • The Finance Director receives the investment statements, records maturities and issuances of new investments and posts entries into the accounting system for interest receivable, revenue and market value changes in investments. • The Finance Director maintains and reviews vacation time, sick time and compensatory time accrual accounts. • The Finance Director enters invoices into the accounting system, maintains the invoices for payment and matches check summary with summary of invoices. • The Finance Director matches the purchase requisition and invoice, approves invoices for payment, posts the payments to the general ledger and is responsible for the signature stamp. In addition to having responsibilities in the cycles listed above, the City's Finance Director has full general ledger access and the ability to write and post journal entries. While we believe this access is necessary to efficiently perform the financial duties required, this access has the ability to override many of the controls and segregation that the City has in place. BALANCE CASH ON A TIMELY BASIS/REVIEW AND APPROVAL OF RECONCILIATION During our audit, we noted cash balances are not reconciled to the general ledger. It is critical to ensure cash is reconciled on a monthly basis. Failure to reconcile these accounts on a monthly basis can generate mispostings and inaccurate accounting records and does not provide current reliable cash balance information for the City Council to gauge expenditure needs. We recommend cash balances be reconciled to the general ledger on a monthly basis, and all variances be investigated. Further, we recommend the reconciliation of the investments include specific procedures for identifying the changes in market value and investment income and these be recorded timely. 7 CITY OF ALBERTVILLE Wright County, Minnesota SIGNIFICANT DEFICIENCIES December 31, 2006 RECONCILE WITHHOLDING ACCOUNTS During our audit, we noted the payroll withholding accounts on the City's financial records are not reconciled. All payroll withholding accounts should be reconciled on a regular basis to ensure proper withholding amounts are posted to the general ledger and paid. We recommend the Finance Director reconcile the payroll withholding accounts monthly to ensure the proper balances are recorded. The monthly reconciliations should be reviewed for accuracy by another City employee (City Clerk or City Administrator). The reconciliations should include signature blocks for the preparer and the reviewer. M. CITY OF ALBERTVILLE Wright County, Minnesota CONTROL DEFICIENCIES December 31, 2006 UPDATE AUTHORIZED SIGNER CARDS HELD AT BANK Copies of signature cards maintained at Premier Bank were reviewed during our audit process. We noted only one signature was required for withdrawals. It is essential for the Finance Director to update the signature card to require two signatures since it is the City's internal control to have checks signed by two authorized signers. We recommend the Finance Director update its authorized signature card at Premier Bank to require two signatures for withdrawal of funds. In addition, it was noted an authorized signer at Rogers State Bank was no longer an employee of the City. We recommend the Finance Director obtain a current authorized signers card from the bank and make the appropriate changes. ESTABLISH AN APPROVAL PROCESS FOR JOURNAL ENTRIES During our audit and test of the journal entry process, we noted journal entries are not approved by someone other than the person writing the entry. Due to the lack of segregation of accounting duties, we recommend each journal entry include adequate documentation and be reviewed/approved by a second person to ensure accuracy. MAINTAIN PROPER SEQUENCING OF CHECKS AND PROPRIETY OF CASH CUTOFF The numerical sequencing of checks did not follow the dates checks were written. This occurred as a result of an accounts payable batch of checks actually written in 2007, but posted to the general ledger for 2006. When checks are written out of order or dates when checks are written are not accurate, it compromises the sequencing which helps to ensure that all disbursements are accounted for. We recommend the Finance Director maintain proper sequencing of checks numerically and by date. This becomes even more important during year-end procedures. 0j CITY OF ALBERTVILLE Wright County, Minnesota MANAGEMENT RECOMMENDATIONS December 31, 2006 NEGATIVE CASH BALANCES/FUND BALANCE DEFICITS At December 31, 2006, 14 of the City's funds had a deficit cash balance. The proper presentation of these deficits is through the use of interfund loans. We recommend the Council develop a plan that details which funds should be loaning cash to the funds with a negative cash balance. In addition to the negative cash balances, all but one of these funds also has deficit fund balance position. If these projects are substantially completed, the funds should be closed and the deficit eliminated as soon as all portions of the project have been paid for. For projects that are just beginning, we recommend the Council develop a plan for funding that would include what the expected sources of revenue are and also where the fund should be closed to if the project is determined to be unachievable or is complete. STATEMENTS OF AUDITING STANDARDS (STANDARDS) NOS. 104-111 In March 2006, the Auditing Standards Board (ASB) issued Statements of Auditing Standards (Standards) Nos. 104 - I I I that provide extensive guidance concerning the auditors' assessment of the risks of material misstatement in a financial statement audit and the design and performance of audit procedures whose nature, timing and extent are in response to the identified assessed risks. Additionally, the Standards establish standards and provide guidance on planning and supervision, the nature of audit evidence and evaluating whether the audit evidence obtained provides a reasonable basis for an opinion on the financial statements being audited. These Standards will be effective for audits of financial statements for periods beginning on or after December 15, 2006. Audit teams will be performing additional procedures to gain a more in-depth understanding of the City's environment, including its internal control. This will involve evaluating the design of the controls and determining those controls have been implemented. The audit procedures performed to obtain the necessary understanding are called "risk assessment procedures" and require more than simple inquiries of management. The Standards specifically call for inquiries of management and other personnel, analytical procedures and observation and inspection. The procedures also involve discussions among the audit team to determine whether the potential exists for misstatements. These Standards also expand the documentation requirements for auditors. In summary, these Standards will result in a substantial change in audit practice. The Standards will strengthen the auditors' understanding of the City and its environment, including its internal control, to identify the risks of material misstatement in the financial statements and determine what the entity is doing to mitigate those risks. Auditors will identify assessed risks based on the understanding obtained. There will be an improved correlation between those assessed risks and the nature, timing and extent of audit procedures performed in response to those risks. 10 CITY OF ALBERTVILLE Wright County, Minnesota FINANCIAL ANALYSIS December 31, 2006 GENERAL FUND General Fund revenues increased from $ 2,780,042 in 2005 to $ 3,232,138 in 2006. Property tax revenues increased 18.3% from 2005 receipts and totaled $ 1,620,927. This was primarily a result in increased levy. Licenses and permits decreased $ 196,316, or 28.7%, and totaled $ 487,132. In 2005, the City had more permits purchased due to a hail storm. There was also a decline in development activity during 2006. Charges for services revenues increased 173% to $ 645,272 as result of charging administrative fees to other departments for services provided. The graph below and on the following page present the General Fund revenues by source in a graph and pie chart formats. $3,250,000 $3,000,000 $2,750,000 $2,500,000 $2,250,000 $2,000,000 $1,750,000 $1,500,000 $1,250,000 $1,000,000 $750,000 $500,000 $250,000 General Fund Revenues $363,279 $81,739 $201,191 $103,756 $46 L $89,689 $98,229 $145,171 $55,943 $412,179 $77,706 5236,136 $115,528 5645,272 $67,345 $572,230 $683,448 $487,132 $587,020 $691,839 $1,370,573 $1,62Q,927 $1,177,380 $1,251,311 $ 1,409,832 2002 2003 2004 2005 2006 OTaxes ■ Licenses and Permits ■ Charges for Services ❑ Intergovernmental ❑Miscellaneous 11 GENERAL FUND Taxes 50% Taxes_ 49% CITY OF ALBERTVILLE Wright County, Minnesota FINANCIAL ANALYSIS December 31, 2006 2006 General Fund Revenues $ 3,232,138 Licenses and Permits 15% Intergovernmental 4% Charges for Services 20% Miscellaneous 11% 2005 General Fund Revenues $ 2,780,042 Licenses and Permits Miscellaneous 15% Intergovernmental 3% ges for Services 8% 1% CITY OF ALBERTVILLE Wright County, Minnesota FINANCIAL ANALYSIS December 31, 2006 GENERAL FUND General Fund expenditures increased from $ 2,421,755 in 2005 to $ 3,301,238 in 2006, which represents a change of 36.3%. For governmental fund types, capital outlay items are included in total expenditures. For 2005, capital outlay expenditures totaled $ 76,373 compared to $ 560,153 in 2006. Without taking into consideration capital outlay, total General Fund expenditures increased 16.8%. All departments posted increased activity except for general government. The decrease in general government is due to the allocation of engineering expenditures to specific projects. Public safety increased due to the purchase of a new fire truck and payment of the administrative fees discussed in the revenue section. Public works increased due to an increase in projects during the year. A graph depicting the expenditures for the General Fund for each of the past five years is illustrated below. The following page presents the expenditures for 2005 and 2006 using a pie chart design. $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 General Fund Expenditures 2002 2003 2004 2005 2006 ■ General Government ■ Public Safety O Public Works O Park and Recreation ■ Economic Development ■ Miscellaneous 13 CITY OF ALBERTVILLE Wright County, Minnesota FINANCIAL ANALYSIS December 31, 2006 GENERAL FUND 2006 General Fund Expenditures $ 3,301,238 Park and Recreation Public Wort 18% Public Safety 49% 2005 General Fund Expenditures $ 2,421,755 Park and Recreation Fcnnnmic Develnnment Public M 18°/ Public Safet} 33% eneral Government 28% wernment 14 CITY OF ALBERTVILLE Wright County, Minnesota FINANCIAL ANALYSIS December 31, 2006 GENERAL FUND Overall, expenditures exceeded revenues by $ 69,100 and net transfers out of $ 492,477 in 2006, resulting in a decrease in fund balance. A five year summary of revenues, expenditures and fund balance follows. This graph does not reflect transfer activity to and from other funds occurring during the year. It also does not reflect other financing sources and uses such as the proceeds from sales of fixed assets. $3,400,000 $3,200,000 $3,000,000 $2,800,000 $2,600,000 $2,400,000 $2,200,000 $2,000,000 $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 General Fund 2002 2003 2004 2005 2006 ■Revenues ■Expenditures 0Fund Balance The 2006 fund balance of $ 1,549,004 is comprised of $ 1,000,000 designated for working capital. 15 CITY OF ALBERTVILLE Wright County, Minnesota FINANCIAL ANALYSIS December 31, 2006 GENERAL FUND The graph below shows the budget to actual results for the General Fund revenue by revenue source. In total, actual revenues exceeded budget by $ 295,821. Most of the excess of revenues over budget was in charges for services and miscellaneous revenues. The variance in charges for services is due to plan check fees not being budgeted and also increased developer fees. A portion of the variance in miscellaneous is due to additional investment income. The City was able to negotiate better investment rates with the financial institutions with which they invest their funds. The other portion of the variation is due to receiving payments from developers as a result of aggressively collecting the receivables outstanding. $2,000,000 $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 [2006 Revenues Budget and Actual] Taxes Licenses and Permits Intergovernmental Charges for Services Miscellaneous ■ Budget ■ Actual 16 CITY OF ALBERTVILLE Wright County, Minnesota FINANCIAL ANALYSIS December 31, 2006 GENERAL FUND The graph below shows the budget to actual results for the General Fund expenditures by department. Overall, the City overspent the budget by $ 443,374. The largest variation is in the public safety department, with a variance of $ 346,024. This variance was caused entirely by the purchase of a new fire truck that was not budgeted in 2006. The variance of $ 122,200 in public works was due to additional unbudgeted projects. There was a minor variance in general government due to a combination of items including increased utility costs and increased legal and engineering fees. $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 2006 Expenditures Budget and Actual � $1, 22,591 $1,236,567 $927,967 $935,828 $605,471 $483,271 $206,059 $173,026 $4,000 $4,322 General Government Public Safety Public Works Park and Recreation Economic Development ■Budget ■Actual 17 CITY OF ALBERTVILLE Wright County, Minnesota FINANCIAL ANALYSIS December 31, 2006 SEWER FUND The following graph provides a history of operating income (or loss) for the past five years for the Sewer Fund. The yellow bar represents a true measurement of operations to be used as a factor in determining whether sewer rates are sufficient to cover operating costs. As the graph indicates, rates for the past four years were sufficient to cover operating costs, which includes depreciation of fixed assets. Revenues that are sufficient to cover operating costs, including depreciation, allow for an accumulation of cash to help fund replacement of depreciable assets. Sewer Fund $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $699,424 $622,660 $495,645 $510,532 $420,509 $4 77,725 — $413,803 L� $459 342 $322,028 $335,797 $292,367 5386,665 $325,481 $280,142 $270,005 $285,621 d s $159,848 ' $1 12,128 $128,142 $105,697 2002 2003 2004 2005 2006 ■ Operating Revenues ■ Operating Expenses OOpuating Income El Operating Income Without Depreciation At December 31, 2006, the Fund had a cash balance of $ 475,095 compared to $ 1,480,736 at December 31, 2005. 18 CITY OF ALBERTVILLE Wright County, Minnesota FINANCIAL ANALYSIS December 31, 2006 WATER FUND Operating revenues, excluding Water Access Charges (WAC) fees, for the Water Fund experienced a 38% increase from $ 242,873 in 2005 to $ 314,847 in 2006. The increase in the revenue is due to getting additional customers on the radio read meters to get more accurate readings of their usage. Operating expenses decreased 8.8% from $ 164,850 to $ 150,249 in 2006 as a result of less main breaks in 2006. The Water Fund has shown operating income in all of the years presented. This is a positive sign that the rates being charged in this Fund are able to cover all operating expenses including depreciation. Water Fund $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 2002 2003 2004 2005 2006 ■ Operating Revenues, net of Joint Powers Portion ■ Operating Expenses, net of Joint Powers Reimbursement ❑ Operating Income 0 Operating Income Without Depreciation 19 CITY OF ALBERTVILLE Wright County, Minnesota FINANCIAL ANALYSIS December 31, 2006 MARKET VALUE, TAX CAPACITY AND TAX CAPACITY RATES The graph below and on the following page provide significant information about the growth experienced by the City to help you continue to analyze your tax rate position. The graph below depicts market value of all taxable property within the City limits, along with tax capacity generated by such growth. As is evident from the graph, property market value has increased from $ 225,728,800 in 2002 to $ 555,414,524 in 2006. During the same time, tax capacity has increased from $ 2,624,887 in 2002 to $ 6,774,663 in 2006. $595,000,000 $560,000,000 $525,000,000 $490,000,000 $455,000,000 $420,000,000 $385,000,000 $350,000,000 0 j $315,000,000 $280,000,000 $245,000,000 $210,000,000 $175,000,000 $140,000,000 $105,000,000 $70,000,000 $35,000,000 [Tax Capacity and Market Value 2002 2003 2004 2005 2006 ■ Market Value ■ Tax Capacity $8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 U F $3,000,000 $2,000,000 $1,000,000 pill